More than half of millennials, or those born between 1981 and 1996, think that they will be millionaires at some point in their lives, according to a 2018 survey from TD Ameritrade. The reality could be a lot less pleasant, though, as a report from the Brookings Institution, first covered by The Economist, makes clear.
“Median wealth among millennials in 2016 was lower than among similarly aged cohorts in any year from 1989 to 2007,” when the Great Recession hit, the report says. “Median wealth among millennials was about 25% lower in 2016 than among similarly-aged households in 2007.”
Millennials have certain advantages in the labor market over previous generations: They are better educated and have longer working lives. But they also have distinct disadvantages, Brookings reports. Their higher levels of education are accompanied by higher levels of debt, and much of the generation is still recovering from entering the workforce at the height of the Great Recession.
Additionally, millennials are largely responsible for funding their own retirements, while many members of previous generations could rely on pensions and other defined-benefit plans to a certain extent. More and more young workers are employed in “contingent” jobs, or as part of the gig economy, which means they may struggle with lower wages and fewer traditional benefits and protections, like access to a 401(k) plan or employer-sponsored health insurance.
“They face an economic future with projections of lower rates of return and economic growth than in the past,” the report says. “These factors make accumulating sufficient funds for retirement more difficult for millennials relative to previous generations.”
Millennials are less wealthy than most previous generations were at the same age, the report finds, which doesn’t bode well for their chances of becoming millionaires, especially since many of them are also skittish about investing.
The Brookings report is far from the first to find that millennials are faring worse financially than earlier generations. A smaller percentage of millennials across the world can be considered “middle class,” compared to Gen Xers and baby boomers at the same age, a recent publication from the Organization for Economic Cooperation and Development found. And a smaller share of them own homes when compared to previous generations at the same point in their lives.
Still, lots of young people remain confident, the TD Ameritrade survey found. Over 70% of millennial men say they will be millionaires at some point, while 38% of millennial women report being similarly optimistic.
Small changes can lead to big savings
The survey notes that millennials expect to begin saving for retirement at age 36 on average, which is far later than financial experts recommend you start. The sooner you can begin putting money aside for retirement, no matter how small the amount, the better. That’s because of the benefits of compound interest, which allows any interest earned to then accrue interest on itself.
If you start investing $1,000 per month at age 25, for example, you’ll accumulate almost $2.3 million by age 67, assuming a 6% rate of return. If you wait until you’re 30, the total falls to $1.6 million. And if you start at 40, you’ll have just $810,579.
“People feel like, ‘Oh, I can’t start, I don’t have any money,'” Denise Nostrom, a New York-based financial advisor with many millennial clients, tells CNBC Make It. “But even if you can do $25, $50 per week or per month — when you see it accumulate, it motivates you to want to do it more.”
How to build wealth
While it’s normal to be wary of investing, especially after coming of age in the aftermath of the Great Recession and the subsequent slow economic recovery, it’s important to understand that dips in the market are opportunities, Nostrom says: “Down markets are actually good because you’re buying things cheaper. Especially people with a 401(k), it’s great because you’re automatically buying sometimes up, sometimes down.”
In the end, though fluctuations can spook investors, what matters is the total you’ve accumulated over the course of a lifetime.
If you’re nervous about investing, that’s okay. Here are some simple and less risky ways you can get started:
The most important factor? Starting as soon as possible.
Don’t miss: Here’s why millennials have to fight harder than their parents did to stay in the middle class
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Twenty/20
