Today’s young people aren’t saving as much as yesterday’s, and it has to do with the Great Recession. According to a paper by economists at the Federal Reserve Board of Governors, the participation of working-age households in retirement savings plans dropped from 80 to 75 percent since 2007.
That’s the broad brush; within it, participation varies by demographic. Of all age groups, young people are participating the least. In fact, they’re participating even less than young people in years past.
Not surprisingly, those who save the least are those who have the least. Workers "in the bottom half of the income distribution" represent the biggest decline in savings over the decades studied.
Why it matters (from an employer’s perspective)
Employers help determine how many Americans are able to save enough for retirement. The resources you offer your workforce are the ones they’re most likely to know about, and more importantly, to use. But what’s in it for you? Quite a bit, actually.
- Do good. Younger workers aren’t always thinking years down the road. By giving them an incentive to save now, you're helping protect their families and their future.
- Attract and retain talent. Employers who support their workers' well-being, including their ability to save for retirement, have more to offer job candidates and employees.
- Save on taxes. You can deduct the contributions you make to the retirement plan you offer your workers. Helping them save makes financial sense for you too.
How you can help your youngest workers save
Some millennials aren’t financially literate; others know what they’re supposed to do, but aren’t in a position to act on it. It’s difficult to save for retirement when you’re living month to month.
Perhaps that's why "fewer than a third [of millennials] contribute at least 10 percent to a 401(k) or a similar plan," according to a survey by the Principal Group (quoted by CNN Money), or why they're "holding upwards of 40 percent of their assets in cash."
The problem is augmented by the fact that employers are taking less responsibility than they once did. "What has happened over the last 20 or 30 years is a transfer of risk from employers to employees," said Anthony Webb, senior research economist with the Boston College Center for Retirement Research.
What can you do? Offer your employees a solid retirement plan with automatic transfer, so they can save without thinking about it. You might also consider making this a default opt-in, so they’d have to exert a little effort to choose not to save.
Education is helpful too. For example, CNN Money suggested that millennials don’t invest because they distrust markets and don't know how to navigate them. But there are ways to avoid the hassle, even for a novice – such as Warren Buffett's 90-10 rule.
One way or another, we encourage you to communicate the importance of retirement savings to your millennial workforce, and for that matter, with workers of all ages, and to provide the resources they need to make this a viable option for them.
Need help getting started? Talk to the retirement plan experts at Higginbotham.