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The Last Nail In The Millennials' Coffin: A Negative 2% Savings Rate
We have extensively covered the economic devastation that currently plagues the largest...
... and most important age for the future of the nation cohorts in the US: adults under 35, also known as Millennials. For a refresher see Millennials Devastated As American Dream Becomes Nightmare For Most, On Crushing Student Loans, Worthless College Degrees And The Millennials, Dear Recently Graduated Millennials: Prepare To Work Until You Are 73, and of course, Meet The Millennials: All You Ever Wanted To Know About America's Youth, In Charts.
Today, we present the latest nail in the coffin of the generation which none other than Obama said he is betting on to "Help Shape the New American Economy."
The bottom line, or rather, negative line, is the Millennials' savings, because "after a flirtation with thrift after the recession, young Americans have stopped saving. Adults under age 35—the so-called millennial generation—currently have a savings rate of negative 2%, meaning they are burning through their assets or going into debt, according to Moody’s Analytics. That compares with a positive savings rate of about 3% for those age 35 to 44, 6% for those 45 to 54, and 13% for those 55 and older."
The turnabout in savings tendencies shows how the personal finances of millennials have become increasingly precarious despite five years of economic growth and sustained job creation. A lack of savings increases the vulnerability of young workers in the postrecession economy, leaving many without a financial cushion for unexpected expenses, raising the difficulty of job transitions and leaving them further away from goals like eventual homeownership—let alone retirement.
“In the very near term it’s a plus for spending and economic growth, but in the long run these households are not saving, and that will impair their ability to spend in the future,” said Mark Zandi, the chief economist of Moody’s Analytics who calculated the numbers with Moody’s economist Mustafa Akcay.
... the new Moody’s data—using a technique developed at the Federal Reserve to combine its Survey of Consumer Finances and Financial Accounts of the United States reports—show how savings rates diverge across demographic groups.
Here is the problem: recall that Janet Yellen's "suggestion" to defeat record wealth inequality is for "poorer" Americans to build assets. Well, there is a problem when you can't even save enough to have $1 left in your pocket at the end of the month after all expenses:
“I’ve been saving almost exclusively in my mind,” said 26-year-old Emily Turner, a 2010 graduate of Villanova University who lives in southern Maryland. Most of her paycheck from the digital consulting and web-design firm she works for “doesn’t even make it to a conventional bank account. I’ve certainly not had the opportunity to invest in stocks or anything.”
The rest is well-known to regular ZH readers:
The problems from a lack of savings promise to reverberate for years. Those who don’t save are unlikely to be wealthy in the future, meaning American angst over wealth inequality seems poised to persist if most millennials are unable to save or choose not to.
Young households’ wealth has declined even more than their incomes. In the previous generation, Americans who were under 35 in 1995—often labeled Generation X—earned wages that were 9% higher than today after adjusting for inflation. Now, the median millennial has a net worth of $10,400, down 42% from $18,200 for Generation X, according to Fed data.
Why the disastrous economic data for America's most important generation? The answer is simple: the economy is, despite all the pomp and propaganda, still a disaster. That, and of course, the $1.2 trillion student loan bubble.
For some young households, the inability to save reflects the weak job market, said Shai Akabas, an economist at the Bipartisan Policy Center. While unemployment nationally has fallen below 6%, workers age 25 to 34 have a 6.2% unemployment rate and those 20 to 24 face 10.5% unemployment.
“There’s people who really can’t save because they don’t have the means to save and that’s not a small group of people,” Mr. Akabas said. “If you’re in a $25,000-a-year job and starting a family, it’s going to be very hard to accumulate savings regardless of your consumption decisions.”
Another big difference from earlier generations is the rise of student loans. In 1995, borrowers under 35 had median student debt of $6,100, according to Fed data. That has risen to $17,200.
For Ms. Turner, debts include $5,000 in student loans, $3,000 on credit cards and $6,000 borrowed from family. “There’s no formal note for that, but it resides in my psyche that I will pay it back at some point,” she said.
“I know I shouldn’t have accepted credit so freely,” she said. “But part of youth, the wiring of a young person, is the focus on really short-term gratification.”
And then there is also the fact that Millennials just prefer to live well:
The money mostly went to her social life and travel, [Emily Turner] says: a trip to Central America, a wedding in Southern California, a bachelorette party in Austin, Texas, trips to Atlanta and Charlotte, N.C., to see friends, another bachelorette party in Austin.
There was a sign it wouldn’t be this way. After the recession, the savings rates of those under age 35 climbed to 5.2% in 2009 and even briefly surpassed the savings of those age 35 to 44, according to Moody’s.
Don't worry Emily, soon enough you won't have the ability to fund such distractions at which point you can once again focus wholeheartedly on boosting your savings. Best of luck.
And in other comedic news, here is Obama's recent Op-Ed targeting the Millennials:
Why I’m Betting on You to Help Shape the New American Economy
History has dubbed you the “Millennials.”
You’re part of the first generation to grow up in the digital age. Some of you grew up with cell phones tucked into your book bags, while others can remember the early days of landline, dial-up internet. You’ve gone from renting movies on VHS tapes to purchasing and downloading them in a matter of minutes.
Today, more of you are earning college degrees than ever before — and more young people from low-income families are getting a shot at higher education than previous generations. Along with having higher education levels, you’ve got a lower gender pay gap than other generations?—?and we’re working to close it even further. Take all those things together, and it’s no surprise that entrepreneurship is in your DNA. One survey found that more than half of Millennials expressed interest in starting (or have already started) their own business.
So here’s something we know for certain: Your rising generation of Americans isn’t just adapting to a 21st-century economy. You’re actively changing it.
And we know that when we invest in your potential, rather than stack the deck in favor of the folks who are already at the top, our entire economy does better. It’s the reason we’ve expanded grants, tax credits, and loans to help more families afford college. It’s why we’re giving nearly 5 million Americans the chance to cap student loan payments at 10 percent of their income. And thanks to the Affordable Care Act, the number of uninsured young adults has fallen by nearly 40 percent over the past four years.
You may have graduated into the worst recession since the Great Depression, but today — for all the challenges you’ve already faced, and after all the grueling work it’s taken to bounce back — you’re in the best position to break into the newest sectors of the new American economy.
...
Throughout my time in office, my Administration has bet on American innovation. We’ve bet on America’s young people. And today, I’m betting that you’ll continue unleashing new ideas and new enterprises for decades to come.
And that's why, dear young Americans, you are fucked.
For further proof, see here:
Etc.
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I'm running out of optional body parts that can be removed! (No gallbladder) :>D
The last time i heard people are having negative savings rates, was about 2007, right before the last meltdown.
Millennials will pay-off the debt when they hit the jackpots as their Baby Boomer grandparents die out and leave Mc Mansions as parting prizes.
Is that the plan then? Ha ha! Wait till they find that all those McMansions are carrying reverse mortgages that the Boomers needed to live on when their pensions and investments were wiped out.
Fight it out with the bank. All the real valuables have been passed on in the form of assets that cannot be seized, so any creditors can battle over the 4 walls encumbered by liens.
They're just picking up on what corporate 'merica does everyday. Cash flow is shitty, but hey let's issues debt to pay ourselves a dividend. Same with Ms Turner who take student loans and cc's to satisfy her need for "trips"...
The student loan boom has ancillary benefits though.
I know this realtor who made a bundle in the boom and he was asked to list this tired old strip-mall built in the 50's for a guy who was retiring. After going through the taxes and cap gains and realtor commissions he showed the guy that he would come out better if he bought the mall and the seller held the note.
The small (by Walmart standards) grocery store that was the anchor had moved out and the mall died. His small building contractor son was tapped to reface the mall with the understanding that it would be his someday and to keep it cheap.
A bunch of metal studs and foam sheets and a false second story facade shot with stucco took a sad 50's single story flat roof strip mall and made it look like a Borders bookstore style new construction.
The son jackhammers up the parking lot in a few places, puts in curbs and plants some trees , rents a sprayer truck and seals the parking lot and shoots new parking lines. Brand new strip mall.
The realtor advertises in a grocery store trade paper and a Whole Foods type store jumps at the chance to get into a University town without having to buy and build and remodels the interior to new with a 10 year lease. An anchor store makes rents jump for the rest of the space so he slides the scale up for the few remaining tenants who are thrilled at the chance to see their businesses come back to life.
Two restaurants follow the grocery store and a dead strip mall has a full parking lot every day, even in a lousy economy. Both of them have become student hangouts and are filled to closing time.
This realtor loves Obama's student loan program and thanks us all for insuring that they will always keep his parking lot full and his tenants paying high rents.
Everybody wins in this deal.
Except the students graduating to no good jobs and the taxpayers.
The lucky ones can bag groceries and be waiters in the places they used to shop and hang out in
Save? For what?
Seriously, why would anyone try to 'save' in this environment? Your better off spending it on whatever makes you happy, because tomorrow it probably won't be there.
It's a bitch for those who make their living skimming from the paltry 'savings' of others, but too bad, so sad. Go out and get a real job.
My oldest son has the right idea...he works for several months, collects some money, then goes on vacation until the money runs out, then comes home and does it all over again. He has seen more of the world than we have, and aside from the student loans, has no other debt. No savings, no investments...no millstone hanging off his neck.
He probably will never own a home, currently doesn't have a car. No cable bill (he watches TV on his laptop), one credit card (used mainly as a 'debit' card that he 'loads'). No stocks or bonds, no 401k or pension...
He is not going to be feeding the system, the way we did. And he has lots of friends who all feel the same way. Good luck to the bankers of the future, trying to skim anything off these kids! They don't believe your lies, and are smart enough to keep what they have out of your hands.
As for that student loan? Right now he's paying, but should things get tight, he's smart enough to know NOT to kill himself trying. And he harbors no illusions of moral hazard, he won't be 'guilted' into acting against his own interests when he knows the game is rigged, especially over some quaint notion of the nobility of paying every penny back. At that point, he would have no problem making a wise business decision and walking away. As a no-asset owning, irregular worker, he is pretty much judgement-proof anyway.
This generation will not be so accommodating towards the bankers.
Jules: I'll just walk the earth.
Vincent: What'cha mean walk the earth?
Jules: You know, walk the earth, meet people... get into adventures. Like Caine from "Kung Fu."
Sure; institute drifting and the hobo lifestyle. Next stop the Safeway parking lot for (plastic) crocks stamped U.S. CHEESEFOOD. Then you line up for bedbug powdering, flea powdering, plastic bedrolls and a plastic shelter to shit & sleep in.
While the asian immigrants, with their superior work ethic, ethnocentric tendencies, "racism" and cultural history, make off with the country.
Right on.
It’s Cheese ‘product’ in these parts.
Uh, right, and what will he do after he turns 45 or so?
You should not confuse self-immolation with "not be[ing] so accommodating towards the bankers", or in other words not taking on any debt (very good idea) doesn't translate into never saving anything too.
He couldn't do that without a home to go to...
Actually, he is self-sufficient. Rents his own place when he gets back from his latest trip. He saves up enough to do what he needs and wants...I can't complain.
Renounce your citizenship and emigrate.
Isn't savings measured by income minus consumption? Thus, saving no income but spending 5% to pay back a student loan is "saving."
rejecting established values and norms ................. essentially a big FUCK YOU to those who like to herd a generation into past FAILED FALSE VALUES ....... JUST EXACTLY WHO IS GUARANTEEING tomorrow... THE FED?? WARREN TAX EVADER BUFFOON ... MARK SUCKMYBERG SELL OUT... JEFF BORROW LIKE THERE IS NO TOMORROW BEZOS.... BORAT EBOLA AND ERIC AINT NO CROOKS HOLDER... TAX SUBSIDY CRONY CAPITALISTS SPY ON YOU SELLOUTS BRIN AND PAGE .... there is no TRUST and besides if the future is SO BRIGHT... what's the rush to save... as frankie boy said IMMA DO IT MY WAY....FORGEDABOUT...
I've met some Millenial kids from the country and smaller towns and they are great young people. I've met other Millenials in the raving political areas of hard Left cities, and they are a disaster! Some try to step the wrong way walking around public parks, when I don't move out of the right hand side (where I belong) they then charge off across the grass! Once I was sitting outside of my apartment and there were about 3 feet in front of me, and about 10 inches behind my chair and the wall, and one of these snotty little leftists quickly squeezed through the 10 inches behind me instead of walking in front like a normal person! I then moved my chair to one inch to the wall, and when the snot came back for a moment he excitedly looked at the one inch, as if he could get through, then he disappointedly walked in front like a normal person.
I can understand the idea of "don't do anything normal" but pairing it with incredible immaturity (because none of these kids should by rights be living in this apartment of mine, they are all sharing student loan checks, then pretending they have means to live like adults, while then pretending to be anti-adults, and for that of course they need an audience of someone older to watch, and that's to show their great new maturity! all very pathetic), with that kind of immaturity, it doesn't matter what opions these losers have, they will fail HARD and each additional year as they get older and slower will find them an even bigger loser than the year before.
Hard work, increasing your skills, good husbandry of what we have and what we earn, and being able to sacrifice now to have more later, are always and everywhere the keys to a stable life, no matter what your age.
At least the country and small town millenials are nice kids, and probably understand work and responsibility much better than their more political washout contemperaries in other places.
"Hey dude, like... check out the grumpy old fart in the chair."
That's actually the edited version, the first version was even grumpier!
But I'm telling you, these kids here are weird, though I admit they are probably outliers even among the radicals, since I'm near an ultra leftist area were most people live on student loans or state jobs.
Happily, I'll be moving soon.
I don't get it why would millenials neet to save!?
With 3% home loans , 7year 0 interest auto fininace , $50/ month iphone bundle
$250/ month health care they can afford anytging!
A 34 year old (me) can actually 'remember' a time before the Internet. I was out of high school when Columbine happened, and in my 20s when 9/11 happened. Carter babies are not Millennials, sorry; a generation is at least 18 years. Get your analysis correct.
if most millennials are unable to save or choose not to
Glaring omission in the style of "Do as I say, don't do as I (or the vast majority of my generation) did!"
So what about the lack of real savings of boomers and X'ers?
("The appreciation of my debt-laden house will pay for my retirement!")
The ever increasing inflation isn't helping anyone to save either. Just went to the store, $1.99 lb of butter selling for $5.25! I was like "What the hell, are the cows dying off or something?". Lots of other prices taking BIG jumps, wait till all those QE bond purchases for years pull a Weimar on all of us, then no one will have really "saved" anything, if it is just paper fiat they are saving.
Like that German guy in the 1930's who paid into a pension for 20 years, cashed it out and bought a loaf of bread with it, thanks to worthless currency.
Give me some land at least, something real that I can grow something real out of.
My 22 yr old niece and 23 year old nephew look at me like I've got a 3rd eye when I mention trying to save part of their paycheck. It's not like they have:
rent
a car payment
health insurance
food
utilities
you know, stuff like that. Just their phones and gasoline and anything fancy to eat that isn't in the fridge already.
Great article, Tyler. I'm a millenial myself, 24-years-old and living/working in NYC. As most of you can guess, its quite difficult to maintain a decent standard of living here while simultaneously saving.
Almost none of my friends my age are saving right now, they either live with their parents or they're at the other end of the extreme and live well beyond their means. I continue to make biweekly contributions to my 401(k) when it is automatically deducted from my paycheck, while I also have an Excel spreadsheet breaking down my monthly expenses as most accurately as possible. I currently put away about $100-$200 per month in short-term savings, and automatically contribute maybe $450 to the 401k per month from paycheck withdrawals. I do my best to live within my means and always pay off my credit card in full on the payment date, because quite honestly having a balance and accruing interest would put me in seriously tough financial shape.
The problem is, however, my student loans. I have over $100,000 in aggregate student loan debt and I'm doing everything I can to prepay it when I have some free cash flow. Luckily my occupation entitles me to a year-end bonus, so I intend to do some more prepayments when I can. My greatest fear, however, is that since the rate on one of my loans is variable...I can be in some trouble when interest rates rise.
Its a financial battle each week, and unfortunately I haven't been able to really get ownership of financial assets via a brokerage account etc because I just haven't had the cash flow yet. It's paramount that I put money away each month both in my checking account and in my 401(k), and buying stocks/bonds right now just isn't in the cards.
I'm a huge ZeroHedge reader and this is my first post, so I'm excited to be a part of the community! Sorry if I bored you with my whole financial situation...but it really isn't often that I can talk openly about it. Just helps to see it all written down every now and then.
If I were in your shoes:
http://www.usagold.com/goldIRArollover.html
I'm not reccomending this company, there's many of them out there, but use the info if you have a self directed 401K. Use due diligence and look for affiliations with long standing co.s like Brinks and other security firms.
Stackers have taken a beating of late but I can't see prices getting much lower.
An allocated account in physical assets would be a better bet than paper promises that can (and will) evaporate like the wind.
When this market blows up, even good companies that will survive will be revalued down and take your money with them. That might be the time to cash in some of your rising gold to buy. Food producers of basic necessities would be the right move.
Just another opinion but you seem like the kind of guy that likes to keep his ducks in line and is forward thinking.
I seriously doubt that the next ten years are going to be like the last and that includes the mess of 2008.
This Titanic is gonna be too big to bail.