Conflicting information has us (and everyone) confused.
Retirement and investing research pegs Millennials as either responsible savers far outpacing their Baby Boomer and Gen X counterparts, or self-indulgent scamps living solely for today.
A hyper-focus on the spending and saving habits of the largest generation in history is understandably causing a variety of opinions—so which are accurate?
Rick Irace, chief operating officer at retirement and college savings-services giant Ascensus, is closely watching (both professionally and personally as a father of two). Noting the connected world in which we live, he believes convenience is key, and smartphone technology will play a critical part.
Irace spoke with 401(k) Specialist about where Millennials are, where they’re going and what it means for retirement plan professionals and service providers.
Q: What’s your take on the generation and how it’s doing?
A: I love studying Millennials versus Boomers and Gen X. Depending on what you read, you get a lot of the conflicting data as to whether they’re on-track or off-track.
Yet I think one thing that’s consistent across the board is the amount of student loan debt they’re dealing with. You hear the average person owes about $50,000, and there’s a greater number of students borrowing to pay for college. So certainly, in terms of the debt that they’re coming out of school with, I think it’s greater than any generation before.
As far as saving, they’re pretty good, but they’re not investing those savings in the market because they’re very leery. They lived through the dot-com bubble and the 2008 financial crisis.
Q: Where are they putting it? Fine wine?
A: It’s interesting that you say that, because they plan the big trips and they skydive and do all those other crazy things. But it seems to me a lot will just put their money in banks, or in investments they feel are extremely safe. But they’re certainly not big on going out and buying a stock and sticking with it.
Q: The well-tread statistic is that they’ll have in the neighborhood of $1 million more if they get started with retirement saving at age 25 versus 35. Has Ascensus figured out the magic formula to getting them engaged earlier?
A: I would tell you that from Ascensus’ perspective we’re big on a couple things. First, the compounding rate of money is significant. The more you put in, the more you end up with in interest and appreciation, and that works miracles.
One of the things we certainly love in the retirement space is the auto programs. We love auto-enroll with auto-escalate. We clearly see that plans that are offering auto-enroll with auto-escalate, even Millennials, I think they’re smart enough that they realize they want to get the company match. They’re at least putting in enough to get the free match.
We are also big believers in education. We’d be big proponents of starting seriously early, as in high school years, even with basic budgeting. We think that that would be amazing, because obviously if they can build a basic budget, they would realize if they would buy two less Starbucks a week they’ve found the money to put away. And I think that the Millennials do get that.
But we need to provide that education in the form that they would like to get it. They’re big users of technology—Facebook, Instagram, Snapchat. Trying to get to them the methodology that they would like is a big win, and we believe that’s the way to do it.
Q: We have behavioral economist Shlomo Benartzi in our latest issue, and he talks about auto-features and digital delivery and everything you just mentioned, but are those things enough?
A: No, auto is great, listen, don’t get me wrong. It’s a great thing, but certainly not enough. Even with an auto increase, they’re not increasing at a fast-enough clip. However, I think they see that the first step is getting in, realizing they can do it, and then increasing over time. I also tell this to people—and I’m sure Shlomo might feel the same way—it’s okay if you get off to a slow start as long as at some point you start catching up.
So, you have the early adopters, which is great, but then you also have those that are catching up. As long as it meets in the middle, it’s okay.
Q: Is the key education, is it financial wellness, is there a difference?
A: I love financial wellness. I’m a big believer that if you can marry health wellness and financial wellness together, that’s a huge win.
We’re really trying to combine the health wellness and financial wellness together. Because it’s the one thing that everyone is focused on is their health and their wellness.
They’ll take the time to look at their health benefits and they’ll take the time to find the right doctors in the network, and when you can marry up the financial aspect of that to it, I think people will take that second look.
Q: What surprises you most about Millennials when it comes to saving?
A: One thing I love about the generation is they definitely want to have an impact. They love social impact investments. That’s a big thing for them and I think that’s pretty cool.
But I think the other thing is that I was surprised that they’re so in-tune to cost—maybe because they just look at their rent and everything else. They definitely like to look at cheap investments. They understand ETFs, they’re very conscious of the investments they get into, and they look for low-cost.
Q: What is Ascensus doing in this area?
A: We’re trying to communicate with them in the way they want to be communicated to. That’s the first thing. How do we get them? How do we give them the basics? With our partner channels, we’re creating certain grouped investments and portfolios they would feel comfortable getting into, so they don’t have to manage their whole portfolio. In other words, they can get into a moderate portfolio of investments and graduate to a more aggressive model from there.
I keep coming back to the education. Trying to explain to them certain tax benefits and certain compounding benefits, that’s where we feel we can win inside the plan accounts, but it must be aligned with a sponsor.