Generation X and Y have financial expectations they aren’t supporting with their actions, according to a recent report by BMO Wealth Institute. Other studies have been hinting at this problem for awhile, but now we have the figures that show why – and how – consumers in these groups will have to change their ways if they want to fulfill their dreams of homeownership, funding their children’s college educations and living comfortably in the retirement years.
Obstacles to Home Ownership
The members of Gen X are now 34 to 48 years old. Their families are in full-swing. They’ve finished college, have moved up in their careers and many have moved onto homeownerships. This first glimpse at how reality compared with their goals may be the reason only 65 percent, versus 72 percent of Gen Y respondents, were confident they’d one day own their own homes.
Home purchases are more expensive now than ever. When Baby Boomers purchased their first houses, the expense was roughly five times their yearly salary. For Gen X’ers, it’s eight times. By the time the majority of Gen Y is old enough and established enough in their lives to want homes of their own, the investment is likely going to be a serious challenge. Not only will making the payments take a tremendous effort, but because of acceptable income-to-debt ratios, qualifying for financing may be next-to-impossible without sizable down payments.
Paying for College
Seven of 10 Gen X and Y’ers surveyed were confident they’d be able to pay for their kids’ educations. For those born in 2013, expenses are expected to top $120,000 a piece. Unfortunately, changing lifestyles may limit people’s ability to cover that tab.
Couples may have to choose between contributing less to their childrens’ education or adjusting their standards of living. The trend toward starting families later in life isn’t ending, meaning that Gen Y’ers especially are likely to have children living at home when they retire. Education and retirement fund savings need to be started sooner to handle these competing burdens. They’ll also have to become more savvy in terms of financial products, phasing high-interest debt out of their budgets and taking a selective approach to credit.
Gen X, Gen Y and Retirement
Today’s job climate has a significant impact on future retirement. Job hopping is the new norm, with 91 percent of Gen Y-ers expecting to spend less than 3 years with any employer. While pension have been a thing of the past for quite awhile, traditional retirement plans have stopped meeting people’s needs, a situation that lends itself to a savings crisis.
According to the report, 14 percent of Gen Y employees don’t put aside any money for retirement at all. Over half have no emergency savings fund in the here and now, despite financial products like Tax-Free Savings Accounts. Not only does this trend significantly chip away at consumers’ financial expectations, it could leave millions without the resources they’ll need when they’re most vulnerable.
Putting Habits to Work
Earnings are not a big part of the problem, as today’s generations make more comparatively than those of the past. What is different is the way they interact. Long-time jobs used to come with financial products with a “set it and forget it” feature, allowing for easy investments and adjustments.
Gen X and Gen Y are more involved, but rely more on social media and text messaging to make connections. Utilizing savings products and working with financial advisors who use these methods for communicating with clients give today’s workers a better chance at establishing a healthy savings plan, and for meeting their most pressing obligations.
