By Megan McArdle*
WASHINGTON, D.C., USA. May 22. (Washington Post) — “By 35, you should have twice your salary saved, according to retirement experts”. It’s an anodyne statement, as these things go; basically it’s what you’ll hear from any financial planner. So when MarketWatch tweeted out those words, it probably weren’t expecting social media to unite into one loud scream of existential anguish. There’s no need to reproduce the exact responses, many of which were profane. Collectively, they formed a dire litany: savings is impossible in this modern economy, so I’ll have to make alternate retirement plans like, er, dying young.
To read the responses is to witness an American dream cleaving into a million broken pieces. That’s not entirely an accurate picture, of course. The people who responded to MarketWatch aren’t a representative sample of the population; most likely, they were moved to reach out precisely because they’re struggling unusually hard. And yet, it’s not an entirely unrepresentative sample, either. A quarter of millennials and Gen-Xers have nothing in the bank for an emergency.
And it’s clear from the data that very few have what financial experts say they’ll need for a healthy retirement: one times your salary by age 30, two times by age 35, and so on, up to eight to 10 times your salary by the age of 65. Why can’t millennials save what they need to? You probably have theories: housing costs, student loans, the poor state of the job market. But it’s hard to make those theories jibe with the data. Millennials do spend a bit more of their budgets on housing than average—35 percent compared to 32 percent.
But that’s about what you’d expect, given that they’re new to the housing market and haven’t had time to build up equity. Student loan debt, another favorite culprit, isn’t nearly as large a problem as you may think. The share of people financing education with debt has risen only about 20 percentage points from the baby boom generation. For those with loans, the median debt is $17,000 — nothing to sneeze at, of course, but it’s roughly the cost of a Chevy Cruze. No one thinks Chevrolet is destroying the American Dream with its crippling car payments.
Meanwhile unemployment is below 4 percent, and median wages are growing briskly, making it hard to argue they can’t find work. So older generations may well be tempted to tut-tut. But not so fast. Our personal savings rate as a nation is hovering near record lows, and surveys routinely find that a majority of Americans live paycheck to paycheck, unable to cover even a $500 emergency. It turns out we’ve been asking the wrong question; we’ve been asking what’s wrong with millennials, when we should be asking “What’s wrong with the rest of us?”
Great question. As recently as 1975, we were saving more than 10 percent of our personal income. Other measures that lean less heavily on bank deposits show a smaller decline, but still a substantial decrease. So this isn’t some hereditary flaw in the national character. Something changed between then and now to transform us from a nation of savers into a nation of spendthrifts. What? That too, is a great question. It’s one I’ll be addressing in my next column, so stand by. In the meantime, don’t lecture millennials for their savings habits. Unless, of course, you’re addressing that lecture to the rest of America, too.
(*) Megan McArdle is a Washington Post columnist and the author of “The Up Side of Down: Why Failing Well Is the Key to Success.”