Posted on March 22, 2016 in Advice
The Critical Reason 20-Somethings Should be Saving Money
For a while now, there’s been a heated discussion in the online space about millennials and saving money—if they’re saving enough, what’s stopping them from saving, how much they should be saving. At least one writer even questioned whether they should be saving at all.
Obviously, that last argument hasn’t received a lot of support. However, as a young person, you might be tempted to put saving money on the backburner for some very legitimate reasons—student loan debt and low wages, for example. Basically, you’re waiting for that nebulous “later” date when your finances are in better shape.
The millennial money conundrum.
As challenging as it might seem to save money in your 20s, you should know that putting off saving is a perilous move—and not just for the usual reasons that everybody cites. Yes, it’s vital to have a safety net in case of emergencies. And yes, the longer you wait, the less time you have to benefit from compound interest and returns. Those are both crucial reasons to start saving and investing sooner rather than later.
Here’s the other, perhaps even more critical reason: the world has fundamentally changed since your parents were in their 20s. While they were (relatively) able to make up for delayed savings in their 30s and 40s, you might not have the same opportunity.
What’s causing this shift? Factors like growing debt, long periods of unemployment and stagnating wages have combined to create a significant income gap between generations. In other words, 20-somethings today are economically more behind than that age group has been historically and less likely to see significant improvement in the future.
To illustrate this point, check out recent data from the Guardian, which shows that disposable income for 20-somethings in the U.S. has been steadily decreasing since 1979. The problem is worse the younger you are—25-29 year-olds have 7.14% less disposable income, while 20-24 year-olds have a whopping 31.53% less.
And lower income in your 20s is only part of the problem. Despite decreasing unemployment, wage stagnation continues to be an issue—and the factors keeping wages down don’t look to be going away any time soon. Which means you can’t bank on a significantly higher income in your 30s and 40s to make up your savings deficit.
There is something you can do.
If you’re a millennial (and you’re still reading this), you’re probably sick of people telling you how screwed you are financially, then in the next breath telling you that you should be saving more. But the truth is, saving money early and often is your best bet for beating this less than ideal situation.
And here’s the good news—even with challenges like student loan debt and low income, you can still save and invest without killing yourself. The key is to not overthink it—start small, automate where possible and keep it simple. An app like Dobot can help you save money without even noticing it’s gone from your checking account (download the app here). Dobot will also be adding an investment feature later this year, which makes it easy to make small deposits add up to big results over time.
All this discourse about millennial money and saving can make you feel helpless, but the best thing you can do is take control now rather than waiting for the economy to sort itself out.