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Retirement: Talk to Kids About Money; Millennials Are Listening

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November 2, 2016
Retirement planning and teaching your adult children how to save money

It turns out that your kids are listening. The millennial generation often gets a bad rap for many things, but when it comes to money, they are actually doing pretty well. In fact, millennials may have more in common with their depression-era counterparts than their boomer parents or grandparents.

Millennials often consult their parents to learn about money and investing and, according to the TD Ameritrade Millennials and Money Survey, 72% of millennials are already saving for retirement. Of the more than 1,000 millennials surveyed, 62% identify as savers and 80% have a budget. 

Millennials are better with money than you think.

FIGURE 1: MILLENNIALS SAVE, BUDGET, AND PLAN AHEAD.

Image source: “As Children of the Great Recession, Millennials Have Become Tight-Fisted Savers, but with the #YOLO Social Pressure to Spend,” TD Ameritrade press release. Data source: “TD Ameritrade Millennials and Money Research.”

Your adult children might be growing up faster than you realize. Here are a few more findings from the survey:

  • Saving, as opposed to spending, makes Americans feel secure and, as a result, happy (80%)
  • The number one reason to save is to have the confidence you can meet your financial obligations whatever happens (66%)
  • Two-thirds of millennials are saving for a down payment on a home (66%)
  • Millennials consider 29 the ideal age to become a homeowner
  • Almost half are concerned about running out of money in retirement (49%)
  • More than half are willing to retire later to maintain their desired retirement lifestyle (53%)

Start the Conversation

The holidays are just around the corner. Now's your chance to follow up on those life-long money lessons you've been trying to teach your kids. Even though they may now be young adults, they are still listening to you. Thirty-eight percent of survey respondents pointed to their parents as the source for their financial advice.

Here are some talking points many financial professionals would mention when it comes to advising your adult children about money, investing, and saving for retirement:

Set up an emergency fund. It’s wise to save up to six months’ worth of living expenses in case of an unexpected financial emergency—anything from a car repair to a job layoff.

Encourage your millennials to invest. Once an emergency fund is fully funded, it’s time to make your money work for you, yet some are understandably hesitant to put funds at risk in an attempt to grow value over time. Of the 1,000 millennials surveyed, 77% said they would stash an extra $1,000 in a savings account instead of the stock market.

Cash does not pay. In today’s low-rate environment, money market and cash accounts offer negligible returns. Cautious millennials may seek to avoid market risk and volatility, but cash holdings can hurt them through inflation and opportunity cost. Inflation is low now, but historically, it ebbs and flows.

Remind them of the time value of money. Investing regularly from a younger age can allow their money to do more work for them. For example: if your millennial starts investing at age 25 and puts away $200 every month into a tax-deferred retirement account such as an IRA or 401(k), that could grow to more than half a million dollars by age 65, assuming an annual investment return of 7%. But if they wait until they are 35 to start investing, they would only accrue half of that.

Automate the investment plan. Save money without thinking about it. Even a small amount can make a difference in your long-term portfolio performance. An automated approach of even $100 a month diverted from your paycheck into a low-cost index fund can help build a nest egg. Make the decision now to automate a specific amount each month into an investment account.

Make it a family affair. Talk to millennials about stocks you’re investing in now. Tell them why you like certain companies, portfolios or strategies, and why you chose them.

TD Ameritrade’s 2016 Goal Planning Survey shows that people who have a savings plan with specific goals are more likely to make progress toward fulfilling their savings or investing targets. Not sure how to get started? Investors of any age and experience level can benefit from a free, comprehensive financial goal planning session with a financial consultant at TD Ameritrade. Visit tdameritrade.com/goalplanning.

Hands-On Retirement Planning

Examine your path to retirement. Call us at 800-213-4583 to speak with a retirement consultant who can personalize a plan for you.

The information presented is for informational and educational purposes only. Content presented is not an investment recommendation or advice and should not be relied upon in making the decision to buy or sell a security or pursue a particular investment strategy.

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