Millennials who are saving money in company 401(k) plans are saving a median 6% of their income, according to a new survey by asset manager T. Rowe Price Group. That figure for workers ages 18 through 33 isn't far behind the median 7% for the total of more than 3,000 401(k) savers who were surveyed and the median 8% for baby boomers, the group closest to retirement. Moreover, 40% of the millennials at an employer for a year or longer said their percentage contribution went up in the last year. (The data don't speak to young adults who aren't employed or who don't have workplace plans available to them.)
While millennials are sometimes described as financially illiterate, "they are trying to do the right thing" in saving for retirement, says Judith Ward, a senior financial planner with T. Rowe Price who spoke at a meeting with reporters on Wednesday. Well, maybe. But this generation has also gotten a strong shove in that direction, which Ms. Ward and colleagues at T. Rowe Price say is a good thing. Many companies automatically enroll new employees in a workplace retirement plan, typically defaulting them into a diversified target-date mutual fund based on their age.
A small number of plans—perhaps around 15% –provide for the percentage contribution to automatically escalate each year. Workers can override these defaults, but rarely do, notes Jerome Clark, who manages T. Rowe Price's target retirement funds. So these automatic features use workers' inertia "to their benefit," by getting them saving in a diversified portfolio, he says. T. Rowe Price has looked at the millennials in the 401(k)s it oversees who have been automatically enrolled, typically in target-date funds. Of them, 90% own only that single fund in their account, Ms. Ward says. "That is how we think it should be used," she says, since target-date funds are designed to be an all-in-one portfolio including a mix of stock and bond holdings.
With the push toward all-in-one funds, Ms. Ward says plans are "saving [workers] from themselves" and potentially poor asset-allocation decisions. Seventy-seven percent of millennials whose T. Rowe Price plans include automatic increases in contributions stick with the increases rather than opting out, she says.
Click through thes slideshow below to view six easy ways to put more money in your pocket.
Easy ways to put more money in your pocket
Good News on Millennials' Finances
Automate your finances.
Set up your finances so that money is taken straight from your paycheck and deposited directly into your savings account or a retirement savings account. You can also set up your fixed bills like your Internet and cable to be automatically deducted from your checking account. Automate your finances to save time and prevent overspending. If you see extra money in your account, chances are you’ll find a way to spend it, leaving you little to invest in your future. Automation helps keep your priorities in line so that as money comes in, it is dispersed to your other accounts immediately.
At least twice a year, look at your expenses line by line and see if you’re getting the most bang for your buck. For example, do you read the magazines you subscribe to or maximize that gym membership? If the answer is “no,” consider canceling or negotiating a better rate. Take that money you save, and apply it toward bigger payoffs like debt reduction, retirement or an emergency fund.
Lots of people use debit cards to make it easy to buy and budget for groceries, gas and other routine purchases. Instead of doing that, look into a credit card with a great rewards program for those daily purchases, and set it up to automatically pay the statement balance from your checking account each month. Over the course of the year, you could potentially pocket a few extra hundred dollars just by using a card with a good rewards program instead of your ordinary debit card (just make sure you’re paying off your credit card every month, so you don’t pay extra in interest).
Boost your income.
If you love your job and want to grow your career, it's time to think about boosting your income as well. Make it a goal to negotiate a raise this year. Consider your strengths and look at the value you've provided to your company over the last six months to a year, and discuss it during a performance review. This can feel intimidating, but it never hurts to ask.
Get a side gig.
Take advantage of your skills, or turn a hobby into profit. Doing so can help you generate extra income – which you can put toward reaching your financial goals. Etsy, for example, is a great place to sell one-of-a-kind products. If you have Web design, copy editing or other creative skills, consider offering your services on freelance websites such as Fiverr or Elance. These types of side gigs will allow you to earn extra income while also growing your skills.
Track your progress.
You can’t save money if you don't know where your money is going. Every month, track your net worth using a personal finance tool or app that will show you exactly where your money is going. This will make you think about your entire financial picture from income and expenses to investments and taxes. With this focus, you can ultimately make the greatest impact on your finances in 2015.