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Friday, April 13, 2018

Do millennials really splurge more than previous generations?

Por Rory

When it comes to responsibilities, millennials tend to have a bad reputation. Apparently, they change jobs too often, leave the marriage for later and are too busy spending their money on unconventional breakfasts instead of saving. A recent survey of 1,037 Americans found that less than a third of millennials contribute to a pension fund, while another Merrill Edge study revealed that they are saving, but not for retirement. So, are millennials worse at organizing their finances than previous generations?

Possibly not. Decade after decade, young people have fled to the idea of planning for old age. This reluctance is not new. A 1998 study found that the youngest of the generation that was born during the baby boom (as the period between 1946 and 1964 is known) saved less for old age than those older than that generation.

Douglas Hershey, director of the Research Laboratory for Retirement Planning at Oklahoma State University in the United States, says this is more related to youth in general than to millennials. "I do not think there's much difference around how important retirement is for millennials or their attitude towards it, compared to those of the baby boom generation when they were 20 years old." More important, he says, are the psychological characteristics that affect how we save, beyond age. One factor is the prospect of future time.

"Some people think of the future five, ten or 20 years, while others are more focused on the present, it's a fairly stable personality trait, people tend to be one way all their lives." Being aware and paying attention to details are good indicators to know if people plan and save for their pension. Even so, Hershey believes that there are more immediate financial concerns for the current generation, such as the rising price of housing and the costs of education.

Sophia Bera is a 33-year-old financial planner who lives in Austin, Texas, USA. Founder of the firm Gen Y Planning, she works primarily with people under 36 years of age. According to Bera, millennials are more concerned about canceling the debts they have contracted to pay for their studies as quickly as possible, rather than saving for retirement.

"If they finish studying law or medicine, they say they know they should save for their pension, but what they want first is to pay their student loans," says Bera. "For the millennials not having debts is like the new American dream much more than having a house, because that causes them less stress". Her clients, she says, usually decide to pay off their debts before other things, although it makes more financial sense to pay them later.

Recent reports that millennials are not saving enough for retirement can also be explained by how they should approach the issue. Making generalizations can be problematic because each country has different retirement schemes. Some, such as Australia and Switzerland, have mandatory retirement schemes in which employees are required to contribute to a retirement account.

Others, like the US, have public schemes in the style of those that are paid as you go like Social Security, which aim to keep retirees out of poverty, supported by individual retirement accounts with contributions from the Employers. But it is also true that the retirement systems of past decades, and other safety nets such as social security, are under more pressure than ever.

One of the great changes in recent decades has been the transfer of responsibility for retirement savings from companies to individuals, says Philip Davis, professor of finance at Brunel University, in London, United Kingdom, and a member of the National Institute of Economic and Social Research. "The big change for the funded systems is the step from defined benefit to defined contribution," says the researcher. "That means that we went from the type of financing that would guarantee a certain type of income from retirement to death, to a fund to which one contributes, and where the pay is determined by the market."

"It is relatively new that people should plan their own future in a domain of complex planning, instead of the company taking care of it for them," says Hershey, "the worker is now in charge and has to make important decisions." With the obligation now on the side of the worker to educate himself, it is not difficult to see why some young people prefer to hide their heads under the sand. But not everyone. Ángel Fernández Amores is a 30-year-old former consultant from Madrid, Spain. He says that most people he knows trust Spain's public pension system. "Even so, Spain is not in the best situation, demographics are changing a lot and it remains to be seen if this pension fund will be sustainable in the long term."

The economic crisis of a decade motivated him to learn how to save for his retirement, and that is how he decided to buy a property in Madrid a couple of years ago as an investment, when prices were at their lowest historical point. "I do not see myself living there with my family, but it's a big investment for a young man, or, in the future, this income can help fund my retirement." Millennials, many of whom have lived during the global financial crisis and have stayed away from equity investments, may rely more on bricks and mortar as a source of income for their retirement. Bera says that more and more clients are asking him about the advantages of investing in property, especially those who live in cities where the price of housing is extremely high.

"Instead of buying their own house, they choose to save to invest in a house elsewhere and earn income by renting it." Nicole Wong, a 28-year-old veterinarian from Hong Kong, plans to use the rent during her retirement. Currently lives in Brisbane, Australia. He says he calculated how much plant he will need to retire, depending on how long he lives, and that his priority is buying a house. "I also want to have at least one property as an investment and a portfolio of shares to finance my retirement."

He says that many of his friends in Hong Kong are thinking about moving to a place where the cost of living is lower when they retire. And others believe that they will never need to retire. At least one survey indicated that 30% of participants (between 18 and 24 years old) do not plan to retire. So, who knows, perhaps the millennials that have already affected so many industries also end up reinventing the concept of retirement.