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We are all receiving reports that the economy is steadily growing. That means more and more people are getting jobs and have the means to support themselves financially. With more people able to support their financial needs, there should be more money going to their savings account right?
If this is the case, then why are we also receiving reports that Millennials are not saving as much as their parents (Gen X) or grandparents (Baby Boomers) when they were the same age?
According to an article published on Slate.com, Millennials may be putting aside a few dollars a month but it is not enough to really give them financial security. They are said to be burning more cash than they should be putting away. At least, if you consider the percentage of their savings and spending as compared to how much they are earning. This article cited a report from Wall Street Journal that revealed how the savings rate of Americans under the age of 35 is down by -1.8%. This is probably why a lot of young adults have a lower median net worth after the recession happened.
The question is, why is saving such a difficult task for these young adults? Does it really go to show that they do not prioritize savings as much as they should?
What keeps Millennials from increasing their savings?
If you look at the whole picture, you will probably understand why putting aside money is hard for this generation.
According to TheAtlantic.com, we should not immediately conclude that Millennials have the worse financial behavior when it comes to savings. Citing data from the Census Current Population Survey, the article said that wages may be to blame for the lack of savings of this generation. The rise of wages is quite dismal compared to the increase in health care, housing and education costs. In fact, the article calls it a stagnant wage growth. Across all industries, only health care wages have gone up. The rest have fallen by more than 10% from 2007.
As we all know, your income affects your ability to save more. If you earn less, you get to have less to save too.
After the Great Recession, a lot of businesses suffered financial setbacks. This made them financially unable to raise wages. Not only that, it also forced them to let go of a lot of employees. With businesses trying to reduce overhead costs and a lot of people trying to get a job, new graduates have to deal with a very competitive job market. The result? They have to settle for less when it comes to their income.
There are degree holders sweating it out on jobs that do not require a college degree in the first place. Having a smaller income is definitely preferable to having none at all. With the growing student loans, it is no wonder that new graduates are willing to compromise what could have been a high-paying career.
With incomes compromised, you can see why it is unfair to blame the financial behavior of Millennials for their lack of savings.
Why Millennials really need to save
But despite this difficulty, it does not erase that fact that Millennials still have to improve their savings. There are three important reasons why this generation specifically has to work harder to save up for their future.Student Loans
The first reason why you have to think about saving is because of your student loans. Most young adults get out of college with this type of debt. Not only is it a hefty amount to pay off, it is also a scary debt to default on. But if you have savings, you do not have to worry about defaulting on this loan.
Saving can complete your debt solution. It works in two ways. If you ever come upon a financial situation that leave you unable to pay off your monthly payments, your savings can come to literally save the day. You do not have to miss out on a payment. You also do not have to bother with any late payment charges.
The second way that it can help is by keeping you from debt. If you need to spend on something unexpectedly, you no longer have to borrow money for that expense. All you need to do is to withdraw the amount that you need from your savings account. You do not have to add to the already burdensome student loans that you currently owe.Financial Investments
Savings are also important because it allows you to invest your money so it can grow your personal wealth. The only way you can invest is when you have the extra money to put in there. It is tough to invest the money that you need to spend on your monthly expenses. That will only lead to debt. Investments, although it is rewarding is still risky. You need to invest money that you can afford to lose. Because if you lose that investment, it could lead to a financial crisis. You still need to invest since it will help you grow your wealth - but it should ideally be done with your savings to lessen the risk that you are taking.Prepare for the Future
Finally, you need to save for your future. This does not only refer to your retirement. It also refers to your future plans of buying a home, a new car, and other purchases that you want to make. It can also refer to life milestones like marriage or parenthood. These will need money and your savings will help you go through these changes and improvements in your life. Instead of borrowing money, you can spend on these expenses. Or if you cannot save up for the whole amount, like the amount needed to buy a home, you can at least limit the debt that you have to borrow.
How can you save money when you earn so little?
While we know how important it is to save more money, the question is, how can we make this possible? According to Forbes.com, Millennials are showing optimism when it comes to their finances but data shows that a lot of them are living from paycheck to paycheck. That translates to them having just enough for their expenses. The article states that more than half of the young adults are in this financial condition. In fact, 35% of them are still receiving financial aid from their families. How can you start improving your savings if you practically have just enough money to spend?
Definitely, the government needs to help make the job market more stable - something that they say they are doing. With the improvements in employment, you can safely say that they are doing their job. But relying on their actions is not enough. You need to exert effort to improve your own savings.
It is important that you treat your savings like a bill. This will keep you from forgetting about it. Prioritize your savings and do not focus too much on how much you are earning. The truth is, a minimum wage increase is not the answer to your financial difficulties. Here are some tips that you need to consider.
- Change your lifestyle. Remember that less is more if your income is not sufficient to meet both your spending and saving needs. If you cannot do something about your income, then do something about your expenses. Change your lifestyle if you have to and downsize to spend less each month. Some MIllennials moved back in with their parents to help increase their savings.
- Plan what you spend. Planning always works. It helps you reach your goals and that includes your saving targets. If you can plan your spending, it should be easy to put aside money to increase your savings.
- Be wise about debt. You do not have to turn your back on debt because there are investments like a home or business loan that you cannot avoid if you want to improve your financial situation. But make sure you are smart about it. Borrow money if you are sure that you can pay it back. Not only that, the debt that you should take on must increase your personal net worth.
- Focus on the future. Lastly, always focus on the future. While it is important to live in the present, it is also a must that you prepare for your future. This mindset will help you put aside more money into your savings.
Here is a testimony from a blogger known as the Frugal Girl. Find out how she practices frugal living to help her family survive cheerfully despite a small budget.