Preparing for Their Future

Transcription

1 Preparing for Their Future AL Look at tthe Financial i lstate t of and Sponsored by The American Savings Education Council and AARP/Divided We Fail Conducted by Mathew Greenwald & Associates Presentation for NEFE s Symposium on the Financial Realities of Young Adults November 2008

2 Methodology On behalf of the American Savings Education Council (ASEC) and AARP/ Divided We Fail, Greenwald & Associates conducted an online survey with young adults ages 19 to 39 about their financial i attitudes and behaviors. In total, 1,752 respondents completed the online study, which fielded in January The data was weighted by age, gender, race and education.

3 Generations Generally speaking, the line between the older Generation X and younger Generation Y is drawn anywhere between 1978 and A generation is composed of people whose common location in history lends them a collective persona. Neil Howe, noted author, historian, economist and demographer For the purposes of this study, the line was drawn at 1980, such that includes those born 1968 to 1979 and includes those born from 1980 to In this study, some older ers and some younger ers were excluded.

4 Topics for Today Financial Maturity Savings Habits and Challenges Generational Differences Financial Knowledge and Sources of Information Retirement and Retirement Income

5 Financial Maturity

6 Most describe themselves as hard- working and optimistic. The vast majority also say they are disciplined. Very well Somewhat well Hard-working 68% 28% 96% 68% 27% 95% 68% 29% 97% 35% 51% 86% Disciplined 37% 51% 88% 33% 51% 84% Optimistic 29% 55% 85% 27% 56% 83% 31% 55% 86%

7 Fewer feel they are carefree or have expensive taste. ers are apt to say they are very techsavvy. Very well Somewhat well Technologically savvy 24% 29% 21% 48% 49% 47% 73% 70% 76% 17% 44% 61% Carefree 18% 46% 64% 17% 42% 59% Expensive taste 17% 27% 44% 19% 27% 46% 15% 27% 42%

8 More ers consider themselves financially independent. The survey data strongly suggests that financial independence is perceived differently by people in different life stages. Do you consider yourself financially independent? 57% 62% 54%

9 The most cited milestones for financial independence are graduation or first jobs. Citing high school versus college graduation correlates strongly to level of education attained. When you got your first job High school graduation Median Age at Start of Financial Independence 20 Start of college College graduation 14% 16% 11% 10% 8% 12% 24% 24% 24% 23% 28% 19%

10 Independent or not, just half suggest they are satisfied with their financial situation. Fewer than one in ten describe themselves as very satisfied. Net Satisfied: 53% Net Not Satisfied: 47% 44% 47% 42% 33% 35% 31% 9% 14% 9% 9% 9% 18% Very satisfied Somewhat Not too satisfied Not at all satisfied satisfied

11 Even fewer feel they are financially secure. Overall, how financially secure do you feel you are right now? Net Secure: 49% Net Not Secure: 51% 42%41% 41% 43% 40% 36% 33% 7% 7% 6% 15% 18% 12% Very secure Somewhat secure Not too secure Not at all secure

12 Definitions of financial security are far from outlandish. Two in ten include affording basic needs and the ability to pay bills in their definition. Nearly as many just want some money leftover for a rainy day. How would you define financial security? Not living paycheck to paycheck / Able to afford basic needs Able to save / Have emergency or rainy day fund Live comfortably Not having to worry about finances Able to deal with the unexpected or hard times Not having debt 8% 7% 9% 22% 20% 23% 19% 18% 20% 16% 17% 16% 15% 16% 14% 13% 15% 12%

13 Savings Habits and Challenges

14 Just half of members of these younger generations report saving on a regular basis. Do you currently save money on a regular basis? 50% 52% 48% 50% 48% 52% Yes No

15 Likewise, about half say they stick to a monthly budget. However, far fewer have taken other key financial planning steps. Stick to a monthly budget 53% 55% 51% 14% Have a formal, written financial plan 12% 16% Have a living will (also known as a health care directive) 14% 11% 16% 14% Have a will 9% 17%

16 The vast majority know and admit they are not saving enough. Given your current income and living situation, do you feel you are saving enough money for the future? 83% 84% 80% 17% 20% 16% Yes No

17 Few give themselves an A for saving and investing. Failing grades are more common. A B C D F 8% 23% 27% 20% 22% How well you are saving money 10% 25% 27% 22% 17% 7% 22% 27% 18% 26% 6% 21% 27% 18% 29% How well you are investing money 5% 20% 29% 17% 28% 6% 22% 24% 18% 30%

18 Many also feel behind in their education, careers, and housing situations. Most feel they are on track in the family life. Education Behind schedule On track Ahead of schedule 42% 49% 38% 46% 40% 49% 7% 6% 7% Career 41% 40% 43% 46% 47% 46% 8% 9% 6% Housing 39% 38% 39% 45% 46% 45% 13% 11% 14% Family life 26% 24% 27% 55% 54% 56% 14% 15% 14%

19 Why do young people feel they are behind schedule?

20 Large shares report having credit card and car loan debt. Three in ten have student loans. Just over one-third say they have mortgage debt. 63% Credit card Car loan Mortgage Student loan Medical Home equity loan Other 17% 35% 31% 32% 30% 27% 25% 28% 11% 4% 16% 22% 20% 23% 57% 67% 48% 42% 52% 49% Do you have any of the following types of debt?

21 Three in ten young adults are $20,000 or more in debt, excluding mortgages. Debt levels seem especially high given that the majority (57%) have less than $10,000 in savings and investments. ers are more likely to describe their level of nonmortgage debt as a major problem. Approximately, how much non-mortgage debt do you currently have? Less than $1,000 $1,000 to $2,499 $2,500 to $4,999 $5,000 to $9,999 $10,000 to $19,999 $20,000 to $49,999 $50,000 or more 12% 17% 9% 7% 9% 7% 11% 14% 9% 18% 19% 17% 21% 21% 22% 20% 15% 23% 10% 6% 13%

22 Debt is one of many reasons why young people p may feel they are behind. Saving for an emergency or having savings in general Behind schedule On track Ahead of schedule 67% 25% 6% 63% 27% 7% 69% 23% 6% Saving for retirement 61% 55% 65% 27% 8% 28% 10% 26% 7% Debt 46% 36% 15% 37% 39% 19% 52% 34% 12%

23 Generational Differences

24 A large share say finding good employment is harder for their generation.

25 Many believe simple financial goals are harder for their generation to reach. Getting an education is the only thing most feel has gotten easier. Getting an education Easier for your generation Same Harder for your generation 54% 24% 22% 57% 52% 22% 26% 21% 22% Buying a first home 28% 25% 30% 25% 27% 24% 47% 48% 46% Finding good employment 24% 28% 21% 32% 30% 34% 44% 49% 37%

26 Over half say saving money and supporting a family is harder for them than their parents. Though getting an education may be easier, saving for one is seen as harder. Easier for your generation Same Harder for your generation Saving for a child s college education 23% 27% 50% 28% 30% 42% 20% 24% 56% Saving money for the long term 20% 23% 17% 29% 35% 25% 51% 43% 57% Supporting a family 14% 18% 11% 28% 31% 36% 54% 61% 46%

27 Cost of living and retirement-related issues are cited as key differences between the generations. Some also feel that their generation saves less and has more problems with debt. Cost of living/inflation Retirement/No pensions/ No Social Security/Medicare Spend more now/don t save Debt/Credit cards Parents were smarter financially/ Saved sooner/disciplined spenders Work environment/ Work harder now/ Change jobs more often 5% 3% 6% 9% 8% 9% 19% 21% 18% 18% 15% 19% 11% 11% 11% 9% 9% 10% What do you think is the most significant financial difference between your generation and your parents generation?

28 Sources of Advice and Financial Knowledge

29 Despite generational differences, parents are the top source of financial advice. A quarter say financial professionals are a major source of advice. Just as many seek advice online. Your parents (or in-laws) Major source Minor source Not a source 28% 38% 32% 30% 51% 31% 32% 40% 17% Financial professional 23% 18% 27% 31% 46% 33% 50% 30% 43% The internet 20% 17% 22% 49% 50% 48% 31% 33% 30% Your employer (or your spouse s employer) 15% 14% 16% 38% 41% 36% 47% 45% 48%

30 Most feel their parents have taught them well, while schools receive a failing grade. Nearly half grade their parents an A or B, while a similar share give their schools a D or F. A B C D F The job your parents did teaching you about saving and investing 18% 21% 16% 28% 22% 15% 16% 33% 23% 10% 12% 25% 22% 19% 18% The job your schools did teaching you about saving and investing 4% 14% 5% 16% 3% 13% 26% 23% 33% 29% 20% 30% 23% 25% 36%

31 Most feel just somewhat knowledgeable about key financial tasks. Very knowledgeable Somewhat knowledgeable Eliminating or avoiding debt 32% 34% 30% 52% 49% 54% 84% 84% 84% How to stick to a budget 32% 34% 30% 48% 48% 49% 80% 77% 83% 32% 53% 86% Buying a car 33% 32% 49% 56% 82% 88% Doing your taxes 26% 23% 29% 40% 37% 42% 66% 60% 70%

32 Far fewer feel they know how to save for retirement or invest their money. Very knowledgeable Somewhat knowledgeable Buying a home 21% 41% 62% 17% 34% 51% 24% 46% 70% Saving for retirement 15% 16% 14% 47% 41% 52% 57% 62% 66% How to invest your money outside of the workplace 15% 18% 14% 31% 33% 31% 47% 50% 44% How the Social Security system works 14% 31% 45% 15% 27% 42% 13% 34% 47%

33 Nearly four in ten expect they will have to help their retired parents financially. The younger ers are significantly more likely than ers to believe they will provide some support to their parents. Do you expect to provide some sort of financial support to your parents during their retirement? 37% 43% 33% 34% 25% 40% 29% 32% 26% Yes No Not sure

34 Retirement and Retirement Income

35 Young people are already thinking about their own retirement. Six in ten have thought about their retirement to some extent. ers have given it a bit more thought. In general, how much thought have you given to your own retirement? 26% 20% 13% 42% 44% 38% 33% 29% 25% 9% 15% 5% A great deal of thoughtht Some thought Not too much thoughtht No thought at all

36 Young adults expect their retirement income will come from 401(k)s and personal savings. They are much less likely than those 40+ to say Social Security will be the largest source of their retirement income. Employer-sponsored retirement savings plan, like a 401(k) Other personal savings/investments, not in a work-related retirement plan Employer-provided provided traditional pension Social Security Employment The sale or refinancing of your home Something else Not sure 8% 15% 7% 6% 9% 2% 2% 1% 3% 3% 26% 19% 22% 17% 15% 41% This study'ss respondents RCS respondents ages 40+ Which of these do you think will provide you with the largest share of income in retirement? t?

37 Half say people their age aren t loyal to their employers, but feel employers aren t loyal either. Strongly gyagree Somewhat agree Disagree People your age feel loyal to their employers 7% 8% 39% 35% 53% 57% 7% 43% 51% Employers generally have their employees best interest at heart 6% 42% 52% 9% 45% 46% 4% 39% 57%

38 Half of employed young adults say they have a 401(k)-type plan available to them at work. And 71% of those who have such a plan contribute to it. Are you eligible for your employer s defined contribution retirement savings plan, such as a 401(k) or 403(b)? 50% 57% 39% 31% 32% 31% 9% 12% 7% 10% 17% 6% Yes, currently covered No, such a plan is available, but you are not covered No, no such plan is available Not sure

39 The vast majority of young adults support automatic enrollment in DC retirement plans. More than four out of five believe automatic enrollment is at least a somewhat good idea. Generally, do you feel it is a good idea or a bad idea for employers to voluntarily enroll workers automatically in a retirement savings plan and set up automatic contributions from the worker s paycheck? 49% 45% 40% 46% 40% 35% 11% 10% 11% 4% 3% 5% Very good idea Somewhat good idea Somewhat bad idea Very bad idea

40 Young adults have little faith that Social Security will be there for them. ers and Yers are less confident than those 40+. How confident are you that, when you retire, the Social Security system will provide you with benefits of at least equal value to the benefits received by retirees today? This study's respondents RCS respondents ages 40+ This Study Net Not Confident: 78% RCS Net Confident: 63% This Study Net Confident: 22% RCS Net Confident: 35% 44% 35% 34% 28% 28% 19% 4% 7% Very confident Somewhat confident Not too confident Not at all confident

41 Key Points Financial independence may be more of a state-of-mind than a concrete event. Many ers and Yers are trying to save, but they also know they are falling short. Young people see many financially aspects of life as harder for their generation. Debt is pervasive. Parents are a major source of financial advice. Although there is some distrust of employers, employer-provided savings plans are seen as critical. QUESTIONS?