Surya Kolluri is Head of TIAA Institute. Jeanne de Cervens is the former Director of Business for Impact’s AgingWell Hub at the Georgetown University McDonogh School of Business. Emily Watson is Director of Program & Operations at TIAA Institute.
Millennials and Gen Z (collectively “young adults”) are at the forefront of activism on global issues. They believe they must take responsibility for addressing climate change, social and racial injustice and other critical issues, and they are also pushing business and governments do their part. Nevertheless, young adults’ belief that they can make a difference on global issues has not yet extended to their financial futures.
In a recent Report by the TIAA Institute and the Business for Impact’s AgingWell Hub at Georgetown University, a majority of young adults indicated that they believed they have a role in solving global issues, while less than half agreed that they were securing their financial future and did not expect to do as well financially as their parents. These findings are based on a March 2023 survey of 1,009 full-time employed respondents, age 24-35, across gender, age, geography, and education/income levels.
What Young Adults Are Facing
Why are young adults more optimistic about their ability to impact global issues than their own financial futures? Do challenges to secure their financial futures seem more overwhelming, is the personal bar to action higher, do they lack understanding about what to do, or all of the above?
Young people today confront numerous financial challenges unique to their generation. Inflation, high education costs, the uneven job market, and steep housing prices leave many burdened with student loans and other debt, and some struggle to make ends meet. Two out of five feel that finances control their lives, so they live paycheck to paycheck; two of three cannot handle an unexpected major expense. Moreover, many are not financially literate, exacerbating their financial fragility.
The good news is that, despite these financial stresses, our Report notes that two-thirds of young adults are saving on a regular basis or when they can, and one-third places saving for retirement as a top financial goal. Nevertheless, this is insufficient for them to feel like they will succeed: while half expect/want to retire at a certain point, fewer than one in five worries about not ever being able to afford to fully retire. In addition, women and low-income young adults are even less confident about being able to retire, compared to their male and high-income counterparts. Some possibly good news is that young adults of color are more financially optimistic than are Whites, perhaps because of greater attention to racial equity resulting from the social justice movement. In addition, more Black/African American young adults are saving than are White young adults, and there is a positive correlation between young adults’ saving habits and beliefs that they are securing their financial futures.
The Role of Workplace Retirement Plans
Employer-sponsored retirement plans can also facilitate saving for retirement, particularly when they include automatic enrollment, payroll deduction, matching contributions, and financial education. Nevertheless, more can be done. For instance, low-income and non-White young adults are less likely to save through workplace plans than their counterparts, something we do not yet fully understand. Is this because of lack of trust in employers or retirement plan providers, lack of access to workplace retirement plans, or other reasons?
Our Report also notes that many young adults do not understand how to invest plan contributions or the benefits that will be paid, despite disclosures and educational materials that typically accompany enrollment in workplace plans. More than two of three young adults believe their retirement plans provide guaranteed minimum income at retirement, although the dominant plan type today is defined contribution, which does not guarantee retirement income. Interestingly, those more likely to actively invest their savings and more willing to accept higher risk for higher expected returns, particularly males and high-income young adults, are more likely to be confident that their retirement plans provide for guaranteed minimum retirement benefits. Black/African Americans are likely to believe that their retirement plans will pay a guaranteed minimum income. Clearly, more information is needed to understand why young adults are confused about critical plan features. Perhaps the plan educational materials are unclear, or maybe young adults simply ignore the education provided and instead simply rely on default investments. In any event, this too is an area for further research.
What Can Be Done
Young adults are our future and, as a group, they are quite committed to having an impact on global issues. They can also help themselves by learning about and participating in their workplace benefits, and taking advantage of their retirement plan tools such as retirement income calculators and lifecycle funds. Those without access to workplace retirement savings plans or financial wellness programs can contact their banks, financial advisors, or other financial services provider for help setting up personal retirement savings plans and investment strategies.
At the same time, they also need help planning their financial futures. Employers, family members, advisors, and financial institutions all can do more to help young adults establish short- and long-term financial plans that include paying down debt, budgeting, and saving regularly for retirement and other financial goals. At a minimum, employers could auto-enroll their employees into workplace retirement plans, provide financial wellness tools to help young adults plan, and educate them about how to reduce financial stress. Employers can also help young adults do more to diversify their retirement investments and evaluate how retirement plans work, along with providing options for default investing and guaranteed retirement benefits.
These actions will go a long way toward helping young adults manage their financial stress and securing their own financial and retirement futures.
Views of our Guest Bloggers are theirs alone, and not of the Pension Research Council, the Wharton School, or the University of Pennsylvania.