Dear Millennials,

There's an old story about a guy taking a smoke break with his non-smoking colleague.

"How long have you been smoking for?" the colleague asks.

"Thirty years," says the smoker.

"Thirty years!" marvels the co-worker. "That costs so much money. At a pack a day, you're spending $1,900 a year. Had you instead invested that money at an 8% return for the last 30 years, you'd have $250,000 in the bank today. That's enough to buy a Ferrari."

The smoker looked puzzled. "Do you smoke?" he asked his co-worker.


"So where is your Ferrari?"

When you think about money and saving, stop, look around, and ask yourself: Where are all the Ferraris? 

Sure, not everyone with $250,000 should buy a Ferrari, or even wants one. But we know the rough financial position of average Americans, and it isn't within hailing distance of Ferraris. Less than 60% of Americans are saving anything, and two-thirds of those who are have less than $25,000 salted away, according to ConvergEx. Almost half of Americans couldn't come up with $2,000 in the next month if they had to, accord to the National Bureau of Economic Research. According to Nielsen Claritas, Americans age 55 to 64 have a median net worth of $180,000 -- less than they'll likely need for health care spending alone during retirement.

How can so many Americans be so poor if accumulating a lot of money over time is as simple as saving a few dollars a day?

Because most people don't take advantage of what you Millennials have in spades: Time. 

You have time on your side. Decades in front of you to save and invest. It's the biggest financial asset you own today, and you're probably not even aware of it. The single best thing you can do for your finances is to realize how valuable it is. 

I know you, Millennials. When you think about building money for retirement, you focus on earning more money later in your career. And why not? You'll likely earn far more in your 40s and 50s than in your 20s and 30s. Waiting until you have a nice fat paycheck before you save money makes sense, right? 


The average American age 16 to 24 earns $444 a week, according to the Bureau of Labor Statistics. Those age 25 to 34 earn $707 a week. Workers age 45 to 54 earn $878 a week. And those age 55 to 64 earn about $900 a week.

So, by the time you're in your 50s you can expect to earn about double what you earned in your 20s and 30s. Optimistically.

Compare that to the value of money saved and invested in your 20s and 30s, and we're not in the same ballpark.

For the last 150 years, the S&P 500 has delivered an average annual return of 6.6%, after inflation. During that period, we had nine major wars, 33 recessions, a half dozen financial crises, and an uncountable number of really awful things happen to the economy. Through it all, 6.6% a year is what you averaged. It's the best estimate we have of what stocks will return over the next many decades.

And lucky you, earning a 6.6% return on your savings does nothing short of miracles over time. If you are 20 years old, every dollar you save today will be worth $18.50 by the time you are 65 (and that's adjusted for historical inflation). If you're 30, each dollar saved today will be worth $9.6 by age 65.

Think about that. From the time you are in your 20s and 30s until your 60s, your weekly wages might double. But money saved in your 20s and 30s could very realistically grow tenfold by the time you reach your 60s. 

Saving a little bit of money when you are young can be a more efficient way to build wealth than saving a lot when you're older.

I know how ghastly the jobs market is right now, Millennials. And most of you lucky enough to have a job feel as if your paychecks round to zero.

I get it.

But don't overlook the incredible asset you have in time. 

Time allows the market to do the heavy-lifting wealth-building for you. 

Take advantage of that any way you can. $20 a month. $100 a month. Whatever. Any small amount you save now will likely be more important to your long-term wealth than much larger amounts saved when you're older and earning more money.

This might sound basic and boring, but in 40 years, you will not care what the 200-day moving average is, or how many basis points Treasury yields rose this month, or the short-term forecast of another well-dressed analyst with a charming British accent. I promise. What will matter is whether or not you saved money and invested it for the long haul. 

I know you, Millennials. You're spending $5, $10 a day on stupid stuff you probably don't even like while working tirelessly in college and work to boost your future earnings. Once you realize cutting out the former can be as important to your finances as trying to boost the latter, you might find yourself closer to your goals. That's how you leverage your assets. That's how you turn cigarettes into Ferraris.

Good luck.

Check back every Tuesday and Friday for Morgan Housel's columns on finance and economics.