Track the companies that matter to you. It's FREE! Click one of these fan favorites to get started: Apple; Google; Ford.



The Most Dangerous Thing People in Their 20s and 30s Do With Their Money

Source:  Flickr / itupictures.

A recent study has revealed that the millennial generation is doing an outrageously dangerous thing with the money they earn. And the habit they have will stun you.

UBS recently released its Investor Watch, its quarterly effort to better understand investors and their preferences and habits. The study focused on the millennials -- those between 21 and 36 -- and how their money habits and thoughts related to the other generations of Americans.

Although many people believe the younger generation to be one marked by laziness, materialism, or countless other negative things, it turns out the perception of the generation doesn't match the reality. In fact, the study itself noted: "Think you know the Next Gen investor? Think again." 

Source: Flickr / itupictures.

The results
The survey from UBS painted a dramatically different picture from what many people think surrounding the youngest generation. These individuals "are extremely conservative, savers not investors, and not nearly as self-directed as one would expect."

The study went on to suggest the habits of millennials more closely resemble the World War II generation -- those 68 and older whose younger years were perhaps in the midst of the Great Depression or the World War -- than others. This was the result of the two major recessions during their formative years, which hurt not only their own investing and job prospects, but their parents as well.

Yet the conservative nature extended beyond simply money habits, as the millennials were "the most worried of all generations," and they "have a broad perspective, including concerns about their retirement and their parents, which directly contradicts the 'entitled, short-term focused' stereotype."

These findings clearly show that the common perception surrounding the millennial generation is simply incorrect. However, there is one result of these habits that is truly dangerous.

The scary habit
The survey found millennials hold 52% of their wealth in cash and just 28% in stocks, whereas all other generations hold just 23% in cash and 46% in stocks, as the following chart shows.

Generation Asset Allocation | Create Infographics

Source: Flickr / Bravo_Zulu_.

Only 28% of millennials considered long-term investing to be a key to achieving success, versus 52% of the non-millennials. 

While financials markets have been full of ups and downs during their formative years, this habit is the exact opposite of what millennials should be doing to allow themselves to achieve financial freedom.

Put simply, the younger an individual is, the more risk tolerance that person should have, and the more willing he or she should be to put money into the stock market.

A powerful example
Consider for a moment two 25-year-olds, Mary and Larry, who committed to saving. Mary saved $100 each and every month into an S&P 500 index fund -- something billionaire Warren Buffett even suggests is a great solution -- with an average return of annual 7.5%. Larry put $500 per month into his bank account and earned 0.25% on the savings. And let's say this lasted for 45 years, until they were 70.

Have any idea who would have more? Despite stashing away five times less than Larry, Mary would have 56% more money than Larry after 45 years. She would've turned $55,000 into $429,000, whereas Larry would find himself with $292,000 after stashing away $275,000 in his savings account.

If you get ambitious and say Mary is able to save 5% more each year -- so she saves $1,260 in year two -- she ends up with $880,000 on $200,000 worth of savings. Put differently, she'd have three times more despite putting away more than $100,000 less.

If you get ambitious and say she can save 7.5% more each year, her total account jumps to $1.4 million by the time she's 70.

Investing can seem scary, and the past 10 years have been a difficult time to stomach the ups and downs of the stock market, but not saving and investing can be far more treacherous.

The key to financial freedom
Investing can be certainly scary, but it doesn't have to be. And the Motley Fool is here to help. Warren Buffett is one of the best investors ever, yet he didn't make billions by betting on half-baked stocks. He isolated his best few ideas, bet big, and rode them to riches, hardly ever selling. You deserve the same. That's why our CEO, legendary investor Tom Gardner, has permitted us to reveal The Motley Fool's 3 Stocks to Own Forever. These picks are free today! Just click here now to uncover the three companies we love. 

Read/Post Comments (0) | Recommend This Article (2)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

Be the first one to comment on this article.

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 2906243, ~/Articles/ArticleHandler.aspx, 8/28/2015 3:43:46 AM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...

Patrick Morris

After a few stints in banking and corporate finance, Patrick joined the Motley Fool as a writer covering the financial sector. He's scaled back his everyday writing a bit, but he's always happy to opine on the latest headline news surrounding Berkshire Hathaway, Warren Buffett and all things personal finance.

Today's Market

updated 6 hours ago Sponsored by:
DOW 16,654.77 369.26 2.27%
S&P 500 1,987.66 47.15 2.43%
NASD 4,812.71 115.17 2.45%

Create My Watchlist

Go to My Watchlist

You don't seem to be following any stocks yet!

Better investing starts with a watchlist. Now you can create a personalized watchlist and get immediate access to the personalized information you need to make successful investing decisions.

Data delayed up to 5 minutes