On the Road: Are Millennials Finally Saving?

  • by itradmin - Thu, 02/01/2018 - 14:08
stacks of change

A recent study by Bank of America has been getting a lot of attention for its optimistic findings on millennial savings habits. According to the study, nearly half of millennials (aged 23 to 37) have at least $15,000 in savings, while one in six have saved $100,000 — twice the rate seen in the 2015 survey.

This report certainly comes as good news to firms in consumer-facing industries. After all, millennials represent a rising share of the US consumer base. However, the overall consumer picture may not be quite so encouraging. Among the leading indicators we track, the US Personal Savings Rate is contracting while Disposable Personal Income is expanding at a slower rate of growth. Our proprietary ITR Consumer Activity Leading Indicator™ suggests that consumer activity will rise at a slowing rate by the second half of 2018. Sensational reports have the ability to draw attention to narrow facets of the economy but are not a replacement for tracking the business cycle and leading indicator evidence. Exercise caution in 2018 as the rate of rise in retail sales slows.

In the longer term, the trends are more encouraging. One of the most concerning factors facing the millennial generation is their student loan burden. US student loan debt is estimated at $1.45 trillion, or $620 billion more than total US credit card debt. However, the delinquency rate on student loans is roughly 11.4%, a figure that has been holding steady for several years. Overall, the student loan problem is not getting worse. Generally rising wages will help borrowers meet these obligations, while also having more to spend in the future.

Additionally, awareness of financial responsibility is rising among millennials. The results of the Bank of America study largely contradict the common narrative surrounding this generation’s money management skills, but many millennials seem to believe the negative stereotypes. More than half said that the generation is not good at managing money, and three quarters believe that their generation overspends on unnecessary indulgences compared to other generations. Overall, more millennials are pursuing responsible money habits, including setting budgets and savings targets. While financial obstacles remain for this generation, millennials do appear to be moving in the right fiscal direction.

Lauren Saidel-Baker, CFA