The Generational Divide: Save, Invest, or Reduce Debt?Submitted by Bernhardt Wealth Management on November 26th, 2018
I recently saw an interesting bit of research from LendEDU.com, a financial resource site designed to help consumers make better borrowing, financing, and insurance decisions. The brief report compares how several different types of consumers would respond to the following question: “If someone gave you $10,000 with all taxes paid, what would you do with the money?”
The survey included Baby Boomers (born 1944-64), Generation Xers (born 1965-79), and Millennials (born 1980-2005). Overwhelmingly, each cohort selected “pay down debt” as the single most popular response, with 33% of Baby Boomers choosing this option, compared with 25% of Generation Xers and 22% of Millennials. Naturally, the character of the debt might be expected to vary significantly among the three cohorts, with Baby Boomers presumably focused on getting rid of consumer debt on the one hand, and Millennials likely wishing to shed student loan debt on the other. Viewed from a wider angle, it is a bit disturbing to realize that the largest percentage of Americans are more worried about servicing debt than increasing their levels of savings and investment.
But savings and investment did figure significantly in the responses to the survey. Combining responses that chose some form of saving or investing—ranging from bank deposit accounts to real estate—almost 40% of Baby Boomers, 34% of GenXers, and 45% of Millennials indicated that they would invest their $10,000 windfall in some fashion. Significantly, 15% of Millennials chose real estate as their preferred investment vehicle, and just over 9% chose virtual currency (Bitcoin, Ethereum, etc.), a choice reflected at almost nonexistent levels in the other two cohorts. Baby Boomers overwhelmingly preferred bank deposits such as high-yielding savings and certificates of deposit (17%).
It is also interesting that 11.3% of GenXers, many of whom have children reaching college age, selected funding a child’s education as their use of the $10,000.
A significant number of respondents in all three cohorts suggested they would use the money to fund IRAs, 401Ks, or other retirement vehicles. Baby Boomers chose this option 11.5% of the time, compared with just under 10% of GenXers and slightly less than 9% of Millennials.
Another interesting finding was that all three groups reported similar levels of interest in investing in their own small business. Baby Boomers chose this option at about a 6% rate, with both GenXers and Millennials choosing it about 7% of the time.
We can surmise from this data that attitudes toward investing and specific investment vehicles vary somewhat by generation. It will also be interesting to watch the rate at which Millennials, who are the most steeped in digital culture of any of the population, continue to embrace cryptocurrency as a valid enterprise. Another trend to pay attention to is the rate at which American consumers are able to address their debt situation, since the data seem to clearly suggest that debt continues to serve as a significant damper on funds available for saving and investing, even among the Baby Boomers as they enter retirement.