How Millennials Are Ruining Their Financial Future

Millennials' ultra-conservative savings habits are making them poorer.

Feb 16, 2014 at 1:15PM


Young people are essentially throwing money down the drain. Source:

Americans aged 21-36 are old enough to have lived through the Asian Financial Crisis, September 11th, several wars, and the global financial crisis of 2008.

Recent history is burned into their brains -- and it's ruining their financial futures.

Like the generation of the Great Depression and World War II, millennials are stockpiling cash, turning away from investments, and banking on saving, not growth, to provide for their futures.

Scared from stocks
The average American aged 21-36 stores more than half his or his wealth in cash, according to a recent UBS survey. A full 13% consider their investment risk tolerance as "conservative." Only one demographic, those aged 68 years or older, are as timid as millennials.

Seniors, however, can afford to be conservative. Millennials cannot.

In an emerging trend, Millennials are investing like their grandparents who experienced the Great Depression -- savers who preferred pillow cases and mattresses to bank accounts. This is only leading to a growing wealth disparity between Americans young and old.

Whereas Millennials have an average of 28% of their net worth in stocks, the rest of the population has 46% of their wealth invested in the market. With stocks rallying more than 30% in 2013, the wealth of Millennials grew slower than the average non-Millennial. Young Americans are falling behind.

Saving and investing
The global financial crisis would have been largely avoided if savings, not spending, had been ingrained in the mind of Americans during the economic boom of the mid-2000s. Saving money is a noble goal.

But beyond a rainy day fund, savings provides little opportunity. Inflation eats away at purchasing power, guaranteeing that any dollar held in cash will be worth less, not more, decades from now. Savings, ironically, is making millennials poor.

It's so obvious. While the numerical value of a bank account may grow over time, the actual value -- the amount of goods or services the bank account can buy -- will only dwindle.

A penny saved may be a penny earned, but for millennials, a penny invested is a future nickel, dime, or dollar. Forgoing capital growth may be the millennials' worst move yet.

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