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With the start of a new decade a mere few weeks away, Americans are feeling particularly good about closing out 2019 when it comes to their current and future financial situation. That said, many are vowing to make it a priority to reduce the burden of personal debt that they incurred this year.
According to Fidelity Investments’ 2020 New Year Financial Resolutions Study, 82 percent of respondents say they are in a similar or better financial position than they were in last year. Most credited their success to their own good habits – saving more (47 percent) and budgeting (29 percent) – rather than their investment gains (18 percent) from a stock market that made one high after another. Less than 25 percent put it down to having been able to work more hours in a strong economy.
And, as the study makes clear, they want to keep the momentum going.
Of the 67 percent considering making a financial resolution, “saving more” and “paying down debt” topped the list, respectively, at 53 percent and 51 percent.
“Living a debt-free life was the biggest motivator for them,” says Melissa Ridolfi, Fidelity’s vice president of retirement and college products.
Heck, given the choice between the classic New Year’s resolution of losing five pounds or socking away $5,000, a resounding 84 percent in the national survey of 3,012 adults opted for savings.
If you want to avoid the biggest and smallest mistakes that respondents made, read on:
• Dining out too much (36 percent).
• Spending too much on non-essentials, such as unused apps, streaming media services, and subscription retail boxes (29 percent).
• Taking on debt or adding to existing debt (28 percent).
•Splurging on something they couldn’t really afford (28 percent).
• Unexpected medical expenses (24 percent).
• Failing to save as much for retirement as they should (18 percent).
So with all the interest in getting a grip on debt, who seems to be faring the best at it?
Boomers, the study finds, with 29 percent crediting being better off financially at year’s end to having refinanced, paid off, or reduced debts or loans. Generation X, the next oldest, trailed at 21 percent, followed by 19 percent of millennials, and just 6 percent of Generation Z.
“Boomers are getting the message that the closer they get to retirement, the more essential it becomes to get their debt under control to make the most out of retirement savings,” Ridolfi says.
Certainly there’s no law that says you have to make a New Year’s resolution – financial or otherwise – but even a huge chunk of those surveyed who weren’t contemplating explicitly doing so, still say they are planning on building up emergency funds. As for what you might call the “traditionalists” out there? Fidelity has some tried-and-true tips that can help ensure your financial vows don’t wind up being among the 80 percent of all resolutions that U.S. News says, alas, fail by the second week of February.
The firm also has an impressive, free online “Moments” tool designed to help you plan for lifestyle changes or react to a myriad of curveballs – i.e., the unexpected medical expenses cited as a big setback in the study – that life throws at you. And accessing the Fidelity Retirement Score gives you a quick look at where you stand with your savings.
Oh, and here’s one last thing to see if you can relate: Seventy-eight percent of those surveyed predicted they’d be even better off financially in 2020.
Just how much are all those stories about crippling student debt having on college campuses? You have only to ask post-millennials now trying – although not always successfully – to avoid being saddled with the same heavy burden of debt as their predecessors.
Not only did 83 percent of current college students surveyed consider what their total costs would be before matriculating – just 69 percent of recent graduates had such foresight – but 39 percent of them said the potential price tag was such “a huge factor” that they purposely limited their choice of schools to the most affordable, according to Fidelity Investments’ new “College Savings: Lessons Learned Study.” Only 32 percent of recent graduates, alas, had shown similar restraint.
“It seems today’s college students are perhaps more aware of the financial situation they entered into than those who graduated before them,” says Melissa Ridolfi, Fidelity’s vice president of retirement and college leadership. “That’s a positive development.”
All told, student debt in the U.S. now totals more than $1.5 trillion – second only to mortgage debt, Forbes reports. And the 69 percent or so of the Class of 2018 who took out student loans graduated with an average debt balance of $29,800.
So it’s understandable why recent graduates would be so anxious over whether they’d ever be able to pay off their loans that they’re now having second thoughts about their decisions:
• 40 percent say that while they don’t regret going to college, they would have made different choices in hindsight.
• Only 14 percent felt the value of their education was worth more than the money they had spent.
And future college students should listen to this sage advice from the more than 4,000 respondents surveyed – all recent graduates, current undergraduates, and parents of either or both – on what would have done wonders to ease their own stress levels.
“When asked ‘If you knew then what you know now when it comes to school selection, what would you do differently?’ the no. 1 answer for all respondents was ‘I would have started saving earlier,’” Ridolfi says.
Which logically brings us to another key finding of the study: only 17 percent of current students and recent graduates had taken advantage, prior to college, of what’s arguably one of the best ways to fund higher education – 529 savings plans.
Unlike regular bank savings accounts, they provide a tax-advantaged way to save money to cover tuition, books and other education-related expenses at most accredited two- and four-year colleges, universities and vocational-technical schools.
The key phrase being “tax-advantaged.” Meaning, earnings grow federal income tax-deferred and withdrawals for qualified expenses are free from federal (and, in many places, state) income taxes – thus affording the opportunity to have even more saved for college.
Significantly, Ridolfi says families using a 529 plan managed by Fidelity have been starting to sock money away earlier than ever before, with contributions beginning on average when the child is about age six-and-a-half. Thirty-six percent of Fidelity 529s are even opened for beneficiaries under age 2.
You say a child hasn’t even uttered his or her first complete sentence before they’re two? Probably not. But just so you’re not bushwhacked when they suddenly hit their late teens, free online resources such as Fidelity’s College Savings Learning Center and College Savings Quick Check– a calculator that even shows you the impact of saving a few dollars more a month – can help prepare you for what lies ahead.
Think of them as your own first baby steps.
For too long, Millennials have gotten a bad rap about money and their ability to save for a rainy day or retirement.
However, a new “Relationship With Money” survey by financial services firm Edward Jones found that not only do more Americans born between 1981 and 1996 consider themselves “savers” than those in their parents’ Gen-X cohort (48 percent vs. 46 percent), but that Millennials also were better at socking away emergency funds (75 percent vs. 66 percent).
That’s right. The same Millennials whose motto could be “Why buy a car when you can Uber?”
“This debunks the myth that Millennials aren’t as financially focused as other generations,” says Edward Jones investment strategist Nela Richardson.
And the survey isn’t some outlier. It’s supported by other research.
The Federal Reserve Survey on Consumer Finances found that while Millennials are deep in debt, more than 42 percent have retirement accounts, the highest share for those under 35 years of age since 2001.
Part of what’s driving Millennials’ emphasis on saving could stem from lingering memories of the Great Recession.
“Back in the late 2000’s, the oldest cohort of millennials entered the worst job market since the Great Depression of the 1930’s,” says Richardson.
“For younger millennials, watching their parents and other family members go through that experience may have also made them more aware of the risks of a market downturn or some other unexpected event, such as losing a home or a job, and so they’re more conservative when it comes to spending and saving in their adult lives,” says Richardson.
One potential alarm bell uncovered by Edward Jones’ sampling of more than 2,000 adults nationally age 18 and over: While 92 percent were honest enough with themselves to recognize there was room for improvement in their financial health, the very thought of saving money sufficed to make more than a third feel either “anxious” or “overwhelmed.”
If that sounds familiar, here are three steps to consider:
• Identify your money-related emotions. People often have emotional responses to money. Getting a big bonus at work can make you feel euphoric; agonizing over what to do with it can be paralyzing even as the logical part of your brain (invest at least most of it) fights it out with the emotional part (splurge it all!). What’s key is knowing that letting your feelings dictate your spending, saving and investing choices can lead to poor decisions.
• Develop a financial strategy. Keeping your cool starts with identifying your main goals – a down payment on a new home, college for your children, a comfortable retirement – and then sticking to a sound, long-term path for attaining them.
• Get an “accountability partner.” Meaning, someone with whom you’re comfortable sharing your finances. It could be a family member. Or a professional financial advisor, such as a local one at Edward Jones, who has the perspective, experience and skills necessary to help you make the moves appropriate for your situation.
“Whether you are strapped with student debt, saving to buy a home or trying to build an emergency fund, there are trade-offs that must be made in balancing these short-term goals and our long-term financial future, such as investing for retirement,” Richardson says. “Without a sound financial strategy, most people tend to be reactive rather than proactive and feel that their money is controlling them.”