According to a recent Bankrate.com survey released this past Monday, millennials — the youngest American generation to make up a percentage of the workforce — are more likely to save their money rather than invest it.
About 40% of American adults between the ages of 18 and 29 favor cash investments, choosing to place their money in savings accounts or certificates of deposit. By contrast, about 25% of adults over the age of 29 favor cash investments, while 23% choose to invest in real estate, and another 19% invest in stocks.
Although hesitation regarding investments is understandable, as Greg McBride, the chief financial analyst for Bankrate.com explains, “The preference for cash and aversion to the stock market among young adults is very troubling considering this age group has the biggest retirement savings burden.”
The problem with saving money, rather than investing, is that cash actually loses value over time, owing to the impact of inflation. By contrast, the S&P 500 gained 17% over the last year. Although short term investing might be risky, long term investments in a diverse portfolio are low-risk, and will more than make up for the cost of inflation — a fact which many millennials might not realize. A poor savings plan now can impact retirement in the future, especially considering that the future state of Social Security is largely unknown.
“Saving is an important first step,” acknowledged Beth Kurth, president of Corporate Forum, a resource for companies to meet with retail investors. “But investing is the critical second step. Not only because of the opportunity for greater returns, but also because there is a learning process involved. Like anything else – from a new microwave to a social media app – there’s a trial and error period. Starting earlier allows for the investment equivalent of burnt coffee (holding too long) and embarrassing posts (crummy holdings) while there’s still plenty of time to realign.”
The study also indicated that young Americans are less comfortable with the debt they carry than older adults are. This — and their ability to put money away in savings or investments, period — is likely influenced by the rising cost of student debt. The price of a college education has risen disproportionately throughout the past several years so that the average debt upon graduation is now about $30,000.