Millennials: big challenges, bigger advantages

Zoe Fielding outlines the unique challenges and major advantages of the youngest working generation.

To people in their 20s and 30s, retirement must seem a long way off. And it's no wonder, since for most Millennials (those born between 1981 and 1996) their post-work life won't start for another 30 or 40 years.

So yes, time is on their side. But the trick is to recognise time as the huge advantage that it is and make the most of it, rather than wasting it.

Before we look at how to do that, let's look at some of the unique challenges facing this generation.

The trouble with being a Millennial

Millennials face unique challenges in saving for their retirement partly because they are starting to work and earn later in life than previous generations did, says leading Australian social researcher Mark McCrindle of McCrindle Research.

"They are earning later than their parents because they are in study longer," McCrindle explains. "They are far more likely to go to university and accumulate HECS and lifestyle debts, like owing money to their parents.

"Beyond that, they will live longer than previous generations and have longer in retirement to fund. Their living costs are higher than ever as well, so certainly there are a few economic challenges."

Millennials' precarious financial position

With more time spent studying and more debt, Millennials are living at home longer.

The 2021 Household, Income and Labour Dynamics in Australia survey found:

• in 2001, 43 per cent of men aged 22 to 25 lived with their parents, as did 27 per cent of women in the same age bracket
• by 2019 those proportions had risen to 55 per cent of men and 50 per cent of women.
  It is also now harder than ever for Australians to break into the property market, with the ANZ CoreLogic Housing Affordability Report for March 2022 showing that the average time for a first home buyer to save a 20% deposit has risen to a national record of 11.4 years.

Home ownership rates among young people have also fallen dramatically, thanks to Australia's rampant property price growth. In 2014 only 25 per cent of Australians aged 18 to 39 owned a home, down from almost 36 per cent in 2002, the survey found.

Millennials are also waiting longer to form families. The average age for men to marry is now 29.9 years, and for women it's 28.3 years, according to McCrindle Research. Compare that to when Baby Boomers were young: data from the Australian Institute of Family Studies shows that in 1982 the average age of first marriage for men was 24 years and for women it was 22 years.

Career-wise, young people are now choosing more flexible – but less stable – working arrangements. McCrindle's research into the future of work found that one in five Millennials of working age had worked in freelance, contract or casual roles, and half of all Millennials said they preferred these non-traditional working styles.

"If the sentiment plays out, we're going to see more of that into the future," he says.

While working in the so-called gig economy offers the potential for higher income, greater flexibility and a better work–life balance, it also has some less desirable consequences for Millennials' financial futures.

"The downside on the earnings side is that people who were otherwise going to be working full time but end up in the gig economy end up earning less because they work less," McCrindle says. "They might get a higher hourly rate, but they work fewer hours. This not only affects their income now but also their superannuation planning."

Retirement planning not high on the Millennial radar

With a lifetime still ahead of them and so many milestones yet to come, it can be difficult for Millennials to start thinking about their retirement.

In fact, the Financial Services Council stated in its report, Millennials' engagement with superannuation that young people are three times less interested in the health of their superannuation than older generations.

Only 8 per cent of Millennials surveyed could identify the amount of money they would need in retirement, and the majority didn't check their super balances.

But it's not too late. As we said above, time is on their side.

Millennials' secret weapon

The biggest advantage Millennials have right now over other generations is that taking an interest in saving early on can pay off handsomely, due to the power of compound interest.

For example, a 25-year-old who puts $50,000 into a superannuation fund earning an annual return of 7 per cent will have more than $815,000 by the time they hit 65, simply through earned interest.

But here's the thing: for every 10 years they delay starting this savings strategy, they'd have to save double the amount to achieve the same result. That's why, by starting early, Millennials can double their money.

The long period of time Millennials have available to accumulate superannuation also means they can ride out fluctuations in investment returns, from boom times to recessions – which means they can choose higher-risk investment options such as shares, which are more volatile in the short term but have higher expected returns in the long run.

Investing in their superannuation rather than elsewhere also offers tax advantages, incentivising them to personally contribute beyond the super guarantee (the 11 per cent employer contribution).

So that's the Millennials' secret weapon: higher contributions, and higher returns, will give them the best chance to achieve the super fund balance they need for an independent post-work life.