For a variety of reasons, millennials, generation x, and baby boomers have different weaknesses and strengths when it comes to how well they manage their finances. While one generation may consist of better savers, they may lack the fundamental knowledge of financial markets, and vice versa. Let’s take a look at how each generation stacks up:
Financial mistakes that millennials make
Millennials tend to be more risk averse, which goes along with their general distrust of big business. We find that many millennials aren’t as knowledgeable on financial markets as gen x and baby boomers.
In addition, millennials tend to save for the short-term, rather than implement a long-term goal. This can be problematic when it comes to retirement planning, as starting early is crucial to establishing a financially secure nest egg.
While millennials tend to be short-term savers and a bit distrusting of Wall Street, they do exhibit financial strengths. Of all the generations, millennials are more realistic and tend to live well within their means. Although they’re the most digitally engaged generation with gadgets and electronics, they tend to have modest tastes that steer clear from expensive things. For example, they are more likely to invest in a smaller house if they are looking into the housing market at all.
Financial mistakes that generation x’ers make
Generation X, also known as the sandwich generation, have some weak points when it comes to handling their finances. Many individuals who fall into this category feel that they are stretched too thin, as they are faced with saving for their kids’ college, retirement, and emergency savings. Many gen x’ers have a hard time juggling these responsibilities.
Individuals in this group also tend to underestimate the inflation of today’s lifestyle costs versus the lifestyle costs that they grew up with. Today’s housing, college, and health care prices are substantially more expensive than the costs their parents had. If a gen x person is catering to the lifestyle they had growing up, they will have a hard time facing the harsh realities of today’s expenses.
Gen x’ers realize the importance of saving for retirement, and are willing to take advice on what they need to do in order to ensure a comfortable lifestyle during their golden years. Many generation x individuals are open to receiving expert advice on how to go about saving for the future.
Financial mistakes that baby boomers make
Baby boomers tend to expect a portion of their retirement to be funded by their parents, while generation x and millennials tend to be more financially independent and self-sufficient. Along with this issue, baby boomers are more likely to not get their retirement act together – due to unrealistic ideas of retirement and insufficient funds.
In addition, it is common that what retirees see as “downsizing” to their retirement home is often more expensive than the home they raised their family in. In reality, they are actually increasing their home expenses instead of eliminating them.
Because of the retirement crisis, baby boomers are more willing to work longer and are least likely to retire at the age of 65. It is common for many individuals to take on a second career, such as opening a business or pursuing a career that speaks to their passion.
In addition, baby boomers also have a better understanding of financial markets and an understanding of what they need to do in the investments sphere. For example, this grouping can identify what the stock market does and what it can do versus what the bond market does and what it can do. This generation needs less educating than the other two.
While each generation’s financial review may differ quite drastically, there is one common trend that all three can improve on. It’s important for all generations to focus on what their expectations are going to be in retirement and what lifestyle they would prefer. From there, it’s essential to address these points by working with an adviser to find out what they need to get there – rather than winging it altogether.