(Photo Credit: SAUL LOEB/AFP/Getty Images)
Pop quiz: which generation boasts the best savers? If you guessed the Depression-era, “Greatest Generation,” you certainly wouldn’t be alone. The now very elderly survivors of the worst of the 1930s economic collapse have probably earned their reputation for practiced frugality. (I certainly watched my grandmother pinch pennies long after she needed to.)
But a new look at how we think of ourselves (and our peers in our respective generations) out from Merrill Edge today shows some surprising gaps between perception and reality, with Millennials appearing to do themselves a disservice. This may not be so unusual, given the survey shows a pattern of each generation being more likely to see the prior ones as “superior savers” — (54% of those queried say the Greatest Generation does a “very good” job, while 45% viewed Baby Boomers in high regard, followed by 19% for Gen Xers and just 8% of Millennials, according to the Merrill Edge Report).
Even among Millennials, a mere 15% rated themselves as doing a “very good job.” Yet when quizzed about their own savings habits, Millennials actually save the most — 36% more than other generations, according to the report.
Why the mismatch between how we think of ourselves and what we are really doing?
Aron Levine, head of Merrill Edge, suspects it has to do with how Millennials regard short-term versus long-term savings and retirement. First, they may have too many competing goals and immediate needs. As Levine suggests, they may say to themselves, “’I have so many different things I want to do,’” he says. “Pay down debt, buy a home, become financially free from my parents.’” At the same time, they may not seek a traditional retirement, but want to pursue their goals and interests now, he adds. Yet, he says, “In reality they are putting money away to achieve those first few things.” (Another finding shows Millennials are most likely — 63% — to be “saving to live my desired lifestyle.”)
This theory could fit with the now well-understood phenomenon of “mental accounting” demonstrated to affect how we segment and frame financial choices, perhaps accounting differently for immediate savings versus long-term. Merrill’s survey doesn’t distinguish between saving for long-term versus short-term goals. But it does elaborate on this apparent lack of confidence and hints at what could be the root cause of another Millennial money preference: seeking more help from others for financial management (as I wrote about looking at the “do it for me” inclination earlier).
In Merrill’s latest look at Millennials, the pattern seems to bear out: 22% of Millennials employ a robo advisor or would consider doing so in the next year to aid with their investments, compared to 13% of the overall group surveyed, according to Merrill. Across age groups, many (40%,) embrace online or mobile accounts, citing the ability to invest mobilely makes them feel “knowledgeable” (51%), “empowered” (31%) and “savvy” (14%). And when you piece that self-analysis together (by inference, most Millennials surveyed don’t think they’re doing a “very good job” and mobile makes people feel more confident) it looks a lot like overcompensating, but for something they feel is lacking, but may not actually be so.
There are other concerns about an over-reliance on mobile. For while some use of your smartphone as a tool to help your financial management (to check your monthly budget before spending or view your bank balances) may aid your efforts to save, spend and invest prudently, research shows when making financial decisions on our phones, we tend to be more impulsive.
Is there a better cure? Morningstar’s behavioral economist Sarah Newcomb developed a quick check-up that might be useful here. Her research demonstrates it could help combat overly pessimistic views. And it may just show our financial habits aren’t as bad as we think they are.
