According to a recent survey on USA Today, 16% of Millennials now have at least $100,000 in savings. This is up more than double the number of people from 2015. So much for all the doom and gloom about low savings rates and lack of financial education.
However, not everything about these numbers is positive. What are some of the reasons why an increasing number of Millennials are saving so much money?
Millennials tend to have an irrational fear of investing. In their lives, they have witnessed the Dot Com collapse, the Great Recession, and several flash crashes. These traumatic events are what they envision when they think of investing. They think that the stock market is like gambling and would lose their whole investment. These fears overlook the gains in the stock market from the 1980’s to today. They would rather avoid the pain than experience the potential gains. Ironically a large number of Millennials are speculating in Bitcoin, which will eventually collapse.
Worker’s salaries have not kept up with inflation and the rise in home prices since the Great Recession. Many Millennials are renters and are priced out of owning a house. Without a mortgage or property taxes to worry about, they have more disposable income to put in a savings account. The good news is that eventually they can use the money saved for a future down payment.
Update A reader on Twitter mentioned that his daughter is living at home, thus she is saving more since she has no rent or mortgage payments. People living at home into their 20’s and 30’s is at an all-time high. Eventually family formation will result in people moving out of their parents’ homes.
About 25% of Millennials work in the gig economy, which is short, on-demand work. Since this work lacks employer benefits like health insurance, a pension, or a 401k, they are forced to save more than they normally would. Their total compensation is much lower than a full time salaried worker and they often have to participate in multiple side hustles to make ends meet.
It’s great that twice the number of Millennials have been able to save over $100,000 from only two years ago. Unfortunately, they are losing out on the gains from the stock market. They are also at the mercy of inflation by renting instead of owning a home. Finally, the gig economy has resulted in additional temporary work, but the compensation is much worse than typical salaried jobs. I believe that the economy will continue to improve with the new Tax Reform plan and the prospects for Millennials will improve as well.