Sean began his career with Advicent as a Support Specialist, applying knowledge of the financial industry to software and offering first-class technical support to the partners of Advicent. Having a strong background in writing and broadcast communication, Sean strives to create accessible, well-written, and accurate material to foster advisor-client relationships.
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“I wish I had saved more and started saving earlier.” 52 percent of individuals 55-64 years old say they wish they had started saving sooner. Additionally, 47 percent said they wish they had saved more. Until mankind invents a time machine, we can only look back at our decisions with a “shoulda-coulda-woulda” attitude.
Learning the importance of saving early
For our entire childhood, or even longer, our parents lectured us about “the value of a dollar.” This included turning off the water when brushing our teeth, closing the door when the air is on (because “we are not paying to make the outside cooler”), and countless other nickel-and-dime savings techniques.
When we were younger, we would get annoyed and chalk up their frugality to trying to make our lives as miserable and complicated as possible. But before long, we grew to understand the importance of these lessons. It may be difficult to visualize the growth of money over decades of time, so let us examine exactly how much the “value of a dollar” means when it comes to saving early.
Each of the following scenarios have two things in common: Total contributions of $200,000 and an average return of seven percent compounded annually.
- Saving $5,000 a year from age 25-65 leads to a net worth at age 65 of $1,068,048
- Saving $6,667 a year from age 35-65 leads to a net worth at age 65 of $673,854
- Saving $10,000 a year from age 45-65 leads to a net worth at age 65 of $438,652
- Saving $20,000 a year from age 55-65 leads to a net worth at age 65 of $295,672
Trying to save despite crippling debt
Advisors know that the earlier clients save, the more their assets will be worth in the long run. Every year, every month, every day that clients wait to invest their money, they are reducing their potential nest egg and costing themselves time to grow their assets.
However, saving income is not a luxury that everyone has. For younger adults with crippling student debt, saving early might not be viable. I have personally seen the life-changing impact that student loans have on Millennials. Most of the people I know are at least $30,000 in debt and their paychecks are dominated by debt repayment and regular living expenses. Soon after graduating college, they realized that they will not be able to save much of anything until their early 30s. In late 2014, Forbes reported that more than half of the “Millennial” cohort lives paycheck-to-paycheck.
Millennials are in a tough spot. Many do not have enough to pay more than minimums; however, if you only pay the minimum on debt, the payments will last much longer and the interest will add hundreds–if not thousands–of dollars to the total amount paid. The mountain of debt on their backs becomes a hindrance to enjoying life. For some, spending even a little money on a video game or a concert becomes a nauseating decision that keeps them up at night.
Assisting Millennials with long-term planning
For many young adults, traveling around the world and experiencing different life events is more appealing and may seem more important than saving money. Unforgettable experiences are undeniably an important part of life, but balancing spending money on life experiences and being financially responsible is a tightrope walk.
Many young people fall into the trap of “I will just start saving in a few years. I want to have fun while I am young!” But with getting married, having children, and buying a house on the horizon for the next few years, the thought of playing catch-up on savings as they get older could be dangerous.
Thinking about long-term financial health might seem abstract to Millennials, especially when it comes to how their current decisions can affect them 30 or 40 years in the future. Remind your Millennial clients and prospects of this: If a future version of yourself could travel back in time to the present (and not create a paradox that will destroy the fabric of the universe), he/she will thank you for being financially responsible sooner than later.
Millennials today are expecting technology to play a role in their financial life. Offering client-facing technology, such as the Narrator® Clients portal, can help them save earlier and understand the importance of a financial advisor.