Millennials are ramping up their savings and beating other generations in the amount they have accumulated, fearful of amassing large amounts of debt.
The survey by Bankrate, a North Palm Beach, Fla.-based financial content company, reported that 62% of Millennials are saving more than 5% of their income, an increase of 42% from last year. Other Gen Y-ers are attempting to save an even larger chunk of their salary with 29% who are saving over 10%, a rise of 22% from last year.
Adults who are at least 30 years old are also working to save more with 50% of them amassing over 5% of their pay.
"Since the financial crisis occurred during their financially formative years, Millennials have a greater inclination toward savings, are more hesitant about consumption and have an aversion to debt that we haven't seen from previous generations,” said Bankrate.com Chief Financial Analyst Greg McBride, CFA.
This trend of saving at a younger age bodes well for Millennials, because as they purchase cars and homes in the future, they will not turn to credit cards or other types of debt to pay for an emergency, said Bruce McClary, spokesperson for the National Foundation for Credit Counseling, a Washington, D.C.-based non-profit organization.
“Even considering the $1.3 trillion burden of student loan debt, Millennials are very aware that savings is vital for their future financial stability,” he said. “By starting early and maintaining a consistent schedule of savings, they are also improving their ability to handle financial emergencies without relying on high interest credit to bail them out.”
Among all generations, the number of Americans who saved over 10% of their income rose to 28% from 24%, the Bankrate survey found. The number of consumers with an income between $30,000 and $50,000 who saved over 10% of their salary rose to 27%, surpassing the 24% of households who generate $50,000 to $75,000 annually.
This pattern of increased savings is crucial as many Americans do not have any emergency funds. A November report conducted by the Pew Charitable Trusts found that one in three families report a lack of any savings, including 10% of people with incomes of over $100,000 annually. If an unexpected expense arose, more than three-quarters said they would utilize the money in their checking or savings accounts.
The survey found that 69% of the respondents said they would resort to using multiple resources, which suggests that they “realize they might not have enough liquid savings to cover the full cost of the shock,” while 49% said they would opt to use credit and 36% would borrow money from someone, the Pew report said.
The majority of households have “very little savings or assets that they could turn to” and the typical one does not have enough money for one month of income with 41% who lacked sufficient savings to cover the “$2,000 cost of the typical household’s most expensive financial shock,” the report added.
"Millennials that have established the habit of saving and are refraining from frivolous spending and the resulting debt are building a solid foundation for their financial futures," said McBride.
A large number of consumers still lack adequate savings for an emergency since only 22% of households who have enough money to cover six months worth of expenses and 29% of Americans have no emergency savings at all, he said.
Another disconcerting statistic finds that only 52% of consumers have more money in emergency savings compared to the amount of credit card debt they owe.
Bankrate’s Financial Security Index fell to 102.7 compared to February’s result of 103.0, but remains the third best reading in the past nine months. Rising net worth was the largest contributor to feeling more financially secure while job security and comfort level were also large factors.
While job security and comfort level with debt are big contributors to improving financial security, rising net worth was the biggest. The survey found that 27% of Americans have a higher net worth than last year compared to 17% reporting a lower net worth.
Cash remains popular among all age groups because the outlook on the economy, job growth and markets is viewed unfavorably.
“Cash is still a favored asset for investors because frankly, people are nervous about the economy,” said Sean Stein Smith, a Hackensack, N.J.-based CPA.
Consumers who do not have a rainy day fund can start by setting aside 10% of their income each time they are paid to reach a goal of six months of income, said McClary.
“It takes time to get there, but it is worth the effort,” he added.