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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.