Youngins make babyboomers look like spendthrifts

[NW-Bound]

A Reuters article on savings habit of different generations has the following excerpt.

"... according to a study by online brokerage TD Ameritrade, younger Americans are hardly the slackers they are often portrayed to be. The vaunted baby boomers - those born between 1946 and 1964 - started saving for their golden years at age 35. Meanwhile, Generation X (born in the late 1960s and 1970s) started much earlier, at 28.

And Generation Y, born in the 1980s and 1990s, bested both of them. They began at an average age of 24."​

See: Generational smackdown! Who is best at retirement saving? | Reuters.

I have always been a saver same as many posters here who achieved FIRE'd status without a pension, but perhaps we are in the minority. On the other hand, I have encouraged my children to save, and they seem to be doing OK. I keep telling them to save in order to be able to retire in the 50s like I did, or they will be working till their end of life.

 

[Amethyst]

Some 20-somethings at work are very active on a "money management" blog that one of them started on the company intranet. They discuss saving strategies and appear to be concerned that their govt benefits won't be enough to retire on.

Actually, we have always had a rather frugal culture where I work...people spend little on clothing or cars, bringing one's lunch is common, etc. I did do a double-take when one fellow claimed to be spending $25,000/year on 3 kids in day care. He's a GS-14 and his wife is a teacher, so they're doing well, but that's a heck of a big bite.

Amethyst

 

[bld999]

I would be interested in an evaluation of risk tolerance between generations. Are the young people considering starting businesses with part of their savings? Or are they convinced that somebody else should take the risk.

What do the poorer saving generations do with their money? Set it on fire, or do something productive?

 

[Animorph]

Seems about right for my family. One DS is saving, I think, way more than I recommended right out of school. I'm pretty sure he'll be an ER. The other DS wants to start his own company right out of college. I'm thinking there won't be a lot of saving there and ER might be a roll of the dice.

 

[Ready]

Younger people are far less likely to find jobs that offer pension plans, so hopefully the increase in savings is due to a realization that the pension plans that our parents relied on for retirement are not going to be there for the current generation, and without investing regularly into a 401K or comparable plan, retirement is going to be a very unpleasant experience.

 

[rescueme]

From the article:

"Generations X and Y have come of age in an era of 401(k)s, which did not even exist in the tax code until 1978."

Actually, it was not until November 10, 1981 that the IRS formerly described the rules for 401(k)'s, and the first contributions under those rules started in 1982.

In 1982, both my wife/me were 34 years of age and neither of us had contributed a penny toward our retirement. Why? Simply because each of us were employed by (different) companies - each with pension programs.

Unfortunately, when the 401(k) materialized, our respective pensions were eliminated.

1982 was pivital in two ways; we both enrolled in our companies 401(k) plans, and we started contributing to our respecive IRA's which was the first year that we were able to contribute, since we both had DB pension plans prior to that time.

IRA contributions and deductions remained the exclusive benefit of only uncovered workers until 1981, when the Economic Recovery Tax Act lifted that limitation. Signed into law by President Ronald Reagan, ERTA allowed all workers, regardless of their employers’ retirement plans, to contribute and deduct up to $2,000 to an IRA.

While we both actually were only to start retirement contributions on our own at age 34, I can only think of the extra $$$ starting at a much earlier age, regardless of contribution level.

For me (as a bleeding edge boomer), that's one of the main reasons why "my generation" is not well prepared for retirement (personal situation being the exception ). Most folks formed their savings/spending habits much earlier in life and many were not willing to reduce their lifestyle they had become accustomed to in order to prepare for their eventual retirement.

FWIW...

 

[haha]

Many of us older members came into the working world when things hade been so good do long that saving seemed superfluous. Then the 70s inflation taught us that savings were useless, what we needed to do was own things. My kids hit the work force when the 90s boom was still strong. I remember my youngest asking his older brother when he could likely buy his first Porsche. Your early experiences, whether with work or with women, strongly color your perceptions of what the world might hold for you.

Ha

 

[donheff]

And defined benefit plans were still thought to be the norm when we were entering the workforce. It wasn't until 10 or more years into our careers that we clued in to the fact that we needed to prepare for retirement. These days it is hammered into the heads of any conscious young worker.

 

[jimbee]

On average, baby boomers don't need help to look like spendthrifts.

 

[Lsbcal]

I try to have gentle financial dialogs with our 29 year old son. He is just starting to earn some discretionary money now after college and being roughed up a bit in the business world. Hopefully there will continue to be "teaching moments" where Dad is not too preachy.

 

[photoguy]

Actually, we have always had a rather frugal culture where I work...people spend little on clothing or cars, bringing one's lunch is common, etc. I did do a double-take when one fellow claimed to be spending $25,000/year on 3 kids in day care.

I almost crapped my pants when my coworker told me she had 3 kids in daycare a total cost of 60k/year. Well at least we get free meals at work.

 

[aim-high]

I almost crapped my pants when my coworker told me she had 3 kids in daycare a total cost of 60k/year. Well at least we get free meals at work.

At 60k/year she or husband should both be making a good salary. By the time you account for taxes, extra clothes, gas, auto expenditure, dinners out because nobody wants to cook at night after working all day and picking up kids . . . both need to make 100k to economically justify one of them working. Let alone thinking about what's best for the kids.

 

[Katsmeow]

I almost crapped my pants when my coworker told me she had 3 kids in daycare a total cost of 60k/year. Well at least we get free meals at work.

That seems unusually high. I have 3 kids, DH and I both worked full time, and day care cost was well under $60k a year (even adjusted for inflation that is really high).

All of that said the cost was sufficiently high that we saved money by hiring an au pair. The au pair program was a wonderful program and we had great au pairs from several different countries over a period of about 4 years.

I would suggest that your coworker could save a lot of money by hiring an aupair. In fact, your coworker would probably save money through a traditional full time nanny (which is more expensive than an au pair).

 

[photoguy]

We're in the bay area and from what I've heard (no kids of my own) is that $20k/year/child is on the higher side but not unusual. The daycare has a waiting list in years and people actually move backward (due to sibling preferences).

My coworker had a nanny before she returned to work. While I think she is frugal, I don't think she has plans for ER and probably feels that daycare will result in the best educational experience for her kids.

@aim-high -- yes she and her husband probably both make over 100k. That is not unusual here for dual-income couples. Another consideration may be even if working is a wash during daycare years, one may still come out ahead due to career advancement.

 

[NW-Bound]

My SILs quit work when they had 2 children each. Good things my brothers' incomes are high enough for a comfortable life with a single income. However, in bad economic times one feels safer with dual incomes.

 

[foxfirev5]

During the '80's DW stayed home and raised 3 kids. In the mid '90's she went back to school and became a nurse. She made enough money to put them through college and build a lakehouse. Two years ago she retired early to run the household while I finish up working. Ah, the good old days, I don't know if the next generation will have it so easy. Even with losing the company pension and several downturns we're still far ahead. I kind of feel guilty, and sure want to be able to pass something on to the kids and grandkids.

 

[Bestwifeever]

DD has a nanny at $15 something an hour for 40 hours a week, plus DD pays all her SS, for one child, city of Chicago. Three kids might come to $60k, especially if one added in the non-nanny cost of little classes etc. Elite city daycare schools would easily come to $60k for 3 kids.

 

[gerntz]

On average, baby boomers don't need help to look like spendthrifts.

My thoughts too.

 

[Chuckanut]

Most of the 20 and 30 somethings I know, work pretty hard. Some have two jobs.

 

[pb4uski]

DD and most of my nieces and nephews (all in their 20s) seem to be savers. One nephew is perhaps too frugal. DD is a good saver and owns her own condo and has more in retirement savings than the average adult in their 50s. DS is just starting out and doesn't like to spend. I'm trying to help him pre-program his savings (15% of gross) and encourage him to spend the rest.

 

[Greencheese]

I know several people who wouldn't be saving if it wasn't for the automatic enrollments that companies perform now sadly...

 

[haha]

I know several people who wouldn't be saving if it wasn't for the automatic enrollments that companies perform now sadly...

Maybe they perform these happily? Oh, I whistle while I work...

 

[misty57]

From the article:

"Generations X and Y have come of age in an era of 401(k)s, which did not even exist in the tax code until 1978."

Actually, it was not until November 10, 1981 that the IRS formerly described the rules for 401(k)'s, and the first contributions under those rules started in 1982.

In 1982, both my wife/me were 34 years of age and neither of us had contributed a penny toward our retirement. Why? Simply because each of us were employed by (different) companies - each with pension programs.

Unfortunately, when the 401(k) materialized, our respective pensions were eliminated.

1982 was pivital in two ways; we both enrolled in our companies 401(k) plans, and we started contributing to our respecive IRA's which was the first year that we were able to contribute, since we both had DB pension plans prior to that time.

IRA contributions and deductions remained the exclusive benefit of only uncovered workers until 1981, when the Economic Recovery Tax Act lifted that limitation. Signed into law by President Ronald Reagan, ERTA allowed all workers, regardless of their employers’ retirement plans, to contribute and deduct up to $2,000 to an IRA.

While we both actually were only to start retirement contributions on our own at age 34, I can only think of the extra $$$ starting at a much earlier age, regardless of contribution level.

For me (as a bleeding edge boomer), that's one of the main reasons why "my generation" is not well prepared for retirement (personal situation being the exception ). Most folks formed their savings/spending habits much earlier in life and many were not willing to reduce their lifestyle they had become accustomed to in order to prepare for their eventual retirement.

FWIW...

When 401ks came of age in the early 80s, so did yuppieism. The up and coming who were still DINKS were obsessed with presenting an upper class standard of living, rather than contributing to a 401k retirement plan that they did not think they would need because they assumed they would be "lifers" and retire from MegaCorp with a fat pension like their parents had. They were busy building a standard of living that they would later not want to reduce.

This is what DH and I observed in the early 80s when we began our careers at MegaCorp. Without mortgages or kids, the opportunity was there, but many took a pass in favor of conspicuous consumption.

 

[rescueme]

On average, baby boomers don't need help to look like spendthrifts.

Really?

 

[Bestwifeever]

I know several people who wouldn't be saving if it wasn't for the automatic enrollments that companies perform now sadly...

I knew several people who would not have retired at all if it wasn't for the pension system in place when they were employed many years ago. I don't see anything wrong with the automatic enrollments today.