Young adults are far more bullish about their ability to change the world than they are about securing their own financial future, according to a report from the TIAA Institute and Business for Impact’s AgingWell Hub at Georgetown University.
The report, “Young Adults, Their Attitudes and Outlook Toward Retirement and the Future,” examined the attitudes and perceptions of working-age Gen Z young adults, age 24-26, and younger millennials, age 27-35 (collectively, young adults), regarding their role in global issues, financial health, and retirement aspirations.
A Surprising Paradox
According to the study, a significant number of young adults expressed a strong belief in their ability to effect change on global issues. They feel empowered to participate, engage, and organize themselves to contribute to broader goals. However, when it comes to their own personal financial future, many young adults lack the necessary education, guidance, and conversation to take specific actions or understand the steps required for financial security.
“A lot of them say that they can improve the world, but as they look ahead, they’re not thinking enough about their own personal financial future and their retirement plans,” said Surya Kolluri, head of the TIAA Institute.
Why are young adults so focused on global issues instead of their own financial future? “They feel like they can participate,” said Kolluri. “They can be involved. They can be engaged. They can organize. So, they feel like they are contributing towards some broader goals that they can be part of.”
But concerning money matters, it may be that young adults lack the education, guidance, and conversations necessary to take control of their financial future.
Financial Concerns of Young Adults
The study’s key findings shed light on the concerning financial situation of young adults. A substantial portion, 42%, reported living paycheck to paycheck, highlighting the financial strain they face in meeting their immediate needs.
Additionally, 51% stated that they do not expect to fare as well financially as their parents, indicating a decline in optimism regarding the traditional notion of the American dream.
Moreover, only 33% expressed confidence in handling unexpected major expenses, emphasizing the lack of financial preparedness among young adults. “That is distressing,” said Kolluri. “We do want people to be prepared for unexpected expenses, plumbing breakdowns, car breakdowns, medical expenses, whatever they are, and the fact that 67%, close to 70%, are not prepared for that is a troubling finding.”
The Role of Social Media and Trusted Sources
The study also revealed that 20% of young adults rely on social media as a trusted source of information.
In the interview, Kolluri emphasized the need to acknowledge the influence of social media and leverage it as a platform to provide credible financial information. “We shouldn’t fight that,” he said. “Social media is a reality, and (young adults)… are turning to social media for trusted information.”
Given that, financial advisers and institutions, he said, should actively engage in social media to ensure accurate and reliable information reaches young adults. By meeting them where they are, financial advisers can establish trust and guide them towards more in-depth conversations, either through digital platforms or in-person consultations.
“Financial advisers, financial institutions should play a stronger role in those media to provide the right kind of credible information to this population because, whether you like it or not, they’re going to be there,” said Kolluri. “And providing the information, then guiding them over to a deeper conversation with financial advisers, either on the phone or digitally or in person, would be the right thing to do.”
The Importance of Retirement Plan Sponsors
For young adults who may not have sufficient assets to seek individual financial advisers, retirement plan sponsors can play a pivotal role in providing financial guidance. By offering comprehensive information and leveraging technology, retirement plan sponsors can assist young employees in understanding the complex financial landscape. They can help individuals navigate issues such as student loan debt, retirement savings, allocation decisions, and the various retirement plan options available to them.
Nuances Across Race and Gender
The study also uncovered interesting differences among various demographic groups. For instance, the survey found that 50% of Black African-Americans reported living paycheck to paycheck compared to 44% of white Caucasians.
However, the study also highlighted a reversal of roles when examining the outlook for the future. While they may face immediate financial challenges, 55% of Black African-Americans expressed optimism about surpassing their parents’ financial status in the long term, Kolluri noted.
Gender differences also emerged, with women exhibiting higher levels of pessimism. However, it is crucial to recognize that women often possess a better understanding of longevity, which is equally important in financial planning, especially for retirement, Kolluri noted.
Clarifying Misconceptions about Retirement Plans
The study identified a misconception among young adults regarding retirement plans. Approximately 70% of respondents believed their retirement plan provided guaranteed minimum income, a notion that does not align with reality, Kolluri noted.
This finding, he said, emphasizes the need for increased clarity and education about retirement plans, including important aspects such as required minimum distributions and the potential role of lifetime income products.
“There is a task ahead of us,” said Kolluri, “to clarify how a retirement plan works and what is it that (young adults) can expect out of this retirement plan when they retire, including required minimum distributions, etc., and the role a real lifetime income product can play in that portfolio.”
Actionable Advice for Young Adults
Kolluri also offered some actionable advice for young adults given the results of the study:
- Educate yourself about your employee benefits. “If the company offers a match, it is free money they’re leaving on the table if they don’t save up to the match,” Kolluri noted.
- Educate yourself about the power of compounding. “If they choose not to get that matching contribution from the company and they let five years go or 10 years go, that compounding is very difficult to catch up on,” he said.
- Learn how to construct a portfolio over one’s lifetime; when they are young adults, when they are parents, when they are closer to retirement, and when they are in retirement. “How should that portfolio be constructed?” he asked. “And what is the role of lifetime income within that? All become very important considerations for young adults to take into account as they save for retirement.”