Young people have burst onto the job scene during a rough economic time. Many in the millennial generation—those ages 18 to 35 now—graduated from high school or college in a time of high unemployment, were burdened by student debt, and struggled to find their footing in a career. Though many continue to draw at least a little from the Bank of Mom and Dad, a new Fidelity survey finds that they are also showing healthy money habits that bode well for their future.
That’s according to Fidelity’s second Millennial Money Study, a survey of 305 older millennials, from age 25 to 35, which focused on how they save and invest, and what kind of help they receive from their parents, if any.
The survey found that just over one in five millennials still lives at home in 2016. Even if they aren’t living with parents, nearly half are getting a little financial help from family. One in five has a cell phone plan or groceries paid for by their parents, for instance. Around 16% have clothing financed by their parents and 14% have utilities or entertainment subsidized by their folks.
At the same time, many are also establishing good saving and investing habits. Here are some highlights of the study.
What about you?
Learning to save for unexpected expenses is one of life’s most important lessons. We suggest saving an amount equal to three to six months’ worth of expenses—just in case you lose your job or have some other emergency. It may sound a little intimidating to imagine saving up thousands of dollars, but slow and steady progress will eventually get you there.
Here’s a quick spending and saving rule of thumb: No more than 50% of your take-home pay should go to necessary expenses, including rent or mortgage, food, health care, and debt payments. Fidelity believes that it is a good idea to put 15% of your pretax pay toward retirement savings (this includes employer contributions to workplace savings plans). Funnel 5% of your take-home pay into your emergency fund. Treat your emergency fund like any other bill and make payments regularly.
Saving for the future
Saving for your retirement right away may seem unnecessary. Why prioritize something that may happen in 40 years rather than spending money on the things you need now?
Here’s why—time and compounding. You may need a lot of money to live in retirement. In order to reach a big savings goal, you have two options—save a lot of money over a short period of time or save a little bit of money consistently over a very long period of time.
Over a long period of time, compounding returns could do a lot of the heavy lifting for you. As your savings earn a return, the returns are added to the original amount. As those returns begin to earn returns of their own, your savings could snowball. It takes time for compounding to work so starting early is important.
Become a confident investor
Saving for retirement is a beautiful thing. But some investing is required.
That doesn’t mean you have to nerd out on trading strategies—you don’t even need to have a ton of money to start investing. All you need to do is make a few choices.
First, you can decide how much responsibility you want to take for your investments. If the answer is “None at all”—no problem. Products like target-date funds, managed accounts, and digital investment managers all exist to do a lot, or all, of the investing for you.
Does this sound like you? Visit the Learning Center on Fidelity.com to read “Diversification through a single fund.”
If you’re interested in managing your own investments, learning the basics of asset allocation and diversification is the best place to begin. Asset allocation refers to the way you spread your money among stocks, bonds, and short-term investments. Diversification is the potential risk-reduction benefit you get from combining investments that move in varying patterns. Your asset allocation strategy is usually based on your how long you will be investing the money (called your time horizon), how you feel about changes in the value of your money (known as your risk tolerance), and your financial situation (paycheck-to-paycheck versus a plush emergency fund, for instance).
For more suggestions on getting started, read Viewpoints on Fidelity.com: “Investing tips for young people.”
Here’s the truth: Everyone who owns even a single investment is an investor. Simply engaging in the activity of investing, through a 401(k), 403(b), IRA, or brokerage account, makes you an investor. It also comes with some responsibility to make informed choices, stick with them, and then update your plan as your situation changes.
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