Millennial Money

Young people are saving more for retirement than Boomers and Generation X — and this is why

Tetra Images

Young people are saving more than previous generations, according to a study, flipping the historical trend that saw older savers put the most money aside towards retirement.

This was the stunning finding of a global survey of more than 25,000 investors across 32 countries, by asset manager Schroders.

The study revealed those aged between 18 and 37 – Generation Z and millennials, though the study groups them all as millennials – are saving nearly 16% of their annual income away for retirement, including employer contributions.

Meanwhile, those aged 38-70, incorporating Generation X and baby boomers, were putting aside around 14-15% of their earnings.

Younger investors were also the most likely to be convinced to increase their savings amounts (97%), compared to just 82% of those aged 51-70.

This was despite the fact that young people presented equal or even slightly higher levels of impulsivity to older generations, when it came to the temptation for spending on a treat.

However, Gen Zers and millennials showed higher levels of anxiety when thinking about how to save, with 12% saying these worries led them to putting off thinking or doing anything about saving. This stood at between 7-10% for older generations.

Schroders suggested young people's greater level of engagement with saving for later life was a sign that people were finally taking on board the message about the importance of putting money aside for retirement.

Sangita Chawla, head of retirement savings at Schroders said that while there wasn't one specific reason for the uptick in saving for retirement among young people, she thought it could be driven by a financial "scarring", having seen what has happened to their parents' pension provisions.

She believed seeing press coverage of the pensions crisis from a young age also had an effect.

"We also see that in some countries where education is free and children are expected to outlive their parents, there is a stronger culture to save," Chawla added.

Saving around the world

Austria had highest average amount of income saved, at nearly 22%. Investors in Switzerland came in second, stashing away 21% of their earnings on average.

Chawla said cultural attitudes played a role in explaining why these northern European countries saved more than their southern counterparts. For instance, she said there is a "strong aversion to debt in countries like Germany and Austria", where many people avoid taking out loans.

Savers in India, Belgium and Australia put around 19% of their salary towards retirement annually.

Chawla said there was a strong culture of saving in Asia more broadly but added that in the case of India specifically there is substantially less state provision, so people have no choice other than to look after themselves, meaning they saved more.

In the report, Schroders attributed the higher rate of saving in Australia to be due to the longstanding compulsory pension system, where employers put 9.5% of employees' gross annual income into their retirement pot. This rate is set to gradually increase and reach 12% by 2025.

In Hong Kong, however, where the average annual contribution is 12%, Schroders pointed out that salary inflation has been unable to match the recent rise in living expenses reducing the disposable income available for people to top up their pension.

Meanwhile, investors in Japan were the most likely to be worried about the amount they had saved, with half of non-retirees citing concerns, which Schroders said was understandable given that 30% of people is already over 60 years' old.