A recent Fidelity Investments study of Americans aged 22 to 33 -- the "Gen Y" cohort -- revealed some alarming truths about young workers' financial health.

In an admitted bright spot, the study found that 70% of Gen Y workers are concerned about their finances. Our recent market meltdown likely had something to do with that. The majority of them check their balances online before making big purchases of $300 or more.

Less good, though, is the fact that 20% of them carry more than $10,000 in credit card debt. That's like quicksand -- very hard to dig out from. Credit card companies such as Citigroup (NYSE:C) and JPMorgan Chase (NYSE:JPM) (and many others) often make offers that encourage borrowers to increase their debt levels. Yet with some cards charging 25% or more in annual interest, that's more than $2,500 in interest alone on a $10,000 balance! Owe $20,000, and the interest would top $5,000 -- every year! Most young people don't have that kind of money lying around.

Not so surprisingly, 25% of Gen Y workers think they'll never be free of credit card debt. These folks need to read some amazing tales of success from our discussion board community. Some posters there have dug out from $100,000 or more in debt, in a few years or less. If these Gen Y-ers change their debt habits, they might get rich and stay rich.

Some amazing numbers
Another development is that Gen Y workers are increasingly valuing benefits at their jobs. Health insurance is the top must-have benefit, with 82% of those surveyed including it on their list. Paid vacation time came in at 68%, and 57% demanded access to a retirement savings plan.

That's good, but not good enough. Only 57% value retirement savings plans? That means 43% don't. Fidelity found that only 18% considered saving for retirement as their "most crucial goal" -- a figure that's actually up from 13% just last year. I get that -- many of these folks might have more immediate goals, such as buying a house, as a higher priority. But they should rethink that. You can always rent and do well ... but it's a mistake to put off saving for retirement, at almost any age.

What many young people don't appreciate is the enviable position they're in thanks to their age. At 25, they have some 40 years before retirement! If you're closer to 45, as I am, then you only have half as long to age 65. Compare the futures of a 25-year-old and a 45-year-old who both begin saving and investing $5,000 per year, which grows 10% annually until age 65:

  • 45-year-old's nest egg, after 20 years: $315,000
  • 25-year-old's nest egg, after 40 years: $2.43 million

Whoa! Kind of amazing, isn't it? That's the power of time. You might argue that the younger worker invests twice as much money -- which is true. (Forty times $5,000 is $200,000, while 20 times $5,000 is just $100,000.) But even if you have the 45-year-old invest $20,000 each year -- four times as much per year, and adding up to double the total amount that the 25-year-old saves -- it would only add up to $1.26 million. That's barely half what the 25-year-old has -- with much less effort.

Small sums matter
Another Gen Y error is one shared by many older people, as well: Cashing out of 401(k) accounts when they change jobs. Some 35% of those surveyed had done so, with a plurality doing so because they thought their account balance was so small that it didn't matter much. Yikes.

Imagine that a 30-year-old Gen Y worker had accumulated ("only") $15,000 in a 401(k) account. If that money were rolled into an IRA account and invested in solid stocks that averaged 10% growth, it would grow to more than $420,000 at age 65. And some stocks have done better than that -- check out some impressive growth rates for some familiar stocks, and see what each rate would do to a $15,000 investment over 35 years:


35-Year Average Annual Return

$15,000 Would Become ...




Boeing (NYSE:BA)


$3.59 million

Procter & Gamble (NYSE:PG)



Merck (NYSE:MRK)



Altria (NYSE:MO)


$5.84 million

Source: Yahoo! Finance.

Of course, no return is guaranteed, and you're not likely to average 18.6%. But such performances are possible, and by selecting stocks carefully, you may well beat the market's long-term 10% average.

Be smart about your retirement and the rest of your money, Gen Y workers! You have time on your side -- but only for so long.

Longtime Fool contributor Selena Maranjian and the Motley Fool both own shares of Procter & Gamble, which is a Motley Fool Income Investor pick. Try any of our investing newsletters free for 30 days. The Motley Fool is Fools writing for Fools.