A Letter to Millennials: You Own the World's Greatest Financial Asset

Let me say up front: I’m not in your generation. I’m part of Generation X. It is sometimes called the 13th Generation. I call it "the last generation to grow up outside." We were different. We were not defined by technology like you are. It was something we had to learn; we weren’t born into it. As a kid, the ability to be mobile on your phone was limited by the length of the cord connecting the handset to the wall.

But this is not an article to exalt the past and denigrate the present. There is enough of that going around these days. To a certain extent every generation laments the next. “Kids these days…” has probably been muttered derisively since “technology” consisted of fire and a sharpened rock.

The same is true today. I hear the term Millennials used in a derogatory fashion quite regularly. Lazy, entitled, and disconnected, are popular insults hurled your way. However, your generation has a tremendous amount to offer. You are the first to grow up with the internet and completely mobile technology. You readily accept this new technology and find increasingly creative ways to employ it to solve problems. You are perhaps the most adaptable generation ever.

Another positive: recent studies have shown that you are reversing the trends of not saving. In fact, Millennials are currently saving at a rate higher than almost any other group. And the rate at which they are increasing their savings is actually greater than the rest of us (take that, Old Guys!)

Perhaps it is the result of the uncertainty of the financial world you’ve grown up in that has led to an increased desire to save. This is not unlike the saving phenomena observed after the Great Depression. Maybe it is because so many of you are under crushing amounts of student loan debt (please, please, PLEASE stop buying incredibly expensive educations that don’t pay you back!). Whatever the reason, keep saving. If you’re not, start now.

TIME

I am often asked, “When should I start preparing for retirement?” That’s an easy question—the day you start working. Although things have gotten better in recent years, the government used to only offer retirement seminars to those who were within 3 years of retirement. Too late. Whatever advice provided in these classes basically started with, “This is what you should’ve been doing for the last 25 years”, since by then, you’ve lost your most valuable asset: Time.

Millennials (and the quickly arriving Gen Z), you have the greatest asset the world has ever known on your side. By saving now, you can dramatically change the future of your net worth. Albert Einstein (a pretty smart guy!) is credited with saying that the most powerful force in the universe is compound interest. What is really at the heart of his statement is time. 

Time will build your account balance even faster than money. 

Let me say that again—Time will build your account balance even faster than money! What???? Here’s what I mean:

Conner and Meghan

Imagine two hypothetical Millennials: Conner and Meghan. They are both 22 and recently graduated from college. Conner begins saving immediately. He saves $2,000 a year each year at 8% for 10 years and then stops. He never puts any more money in. (THIS IS A KEY POINT!)

Meghan on the other hand, does not start saving until she turns 32. But to make up for not starting at 22 like Conner, she decides to save $2,000 each and every year for the rest of her life, thinking surely she will catch up to him in a few years, right?

WRONG!

At 32, Conner will have over $28,000, Meghan will just be starting so she’ll be at $0. At 42, Conner will have over $62,000, while Meghan will have only $28,000. At 52, Conner’s balance is $135,000; Meghan’s is only $91,000. Finally, when they are both eligible for Social Security benefits at age 62 (assuming such a thing exists then, right?), Conner will have a balance of over $291,000 while Meghan will only have $226,566.

 

Remember, Meghan put in $2,000 every single year, while Conner only contributed $2,000 for the first ten years ($20,000 total) then never contributed again. Yet, his balance 40 years later was $65,000 more than Meghan’s. Meanwhile Meghan contributed three times what Conner contributed ($60,000) but never caught up. And she never will. All because of time. Starting early wins.

Isn’t This Unrealistic?

I know what you’re thinking: I don’t make that much right now. I’ve got student loans. I have lots of credit card debt. I can’t afford to save. All valid points. And all of those things need your attention. But understand this: the sooner you begin, the less you have to save. Remember Conner in the above example? He only saved $20,000 over ten years and ended up with more in the long run.

Don't fall into this trap: "I can only afford to save $50 a pay period right now. I'll wait until I can save more. After all, what can fifty bucks do really?" You'd be surprised what just a little bit of money can do over time. I know, because I hear the stories of people that did just that.

 

So What Can I Do?

Your agency automatically contributes 1% to your TSP. They are willing to match another 4% for a total of 5%. So goal number one is to start contributing to your TSP. Goal number two is to get to the 5% contribution level. By at least contributing enough to maximize the matching amount now, you are starting early (and getting free money!)

Consider Within Grade Increases, raises and locality pay adjustments as additional ways to increase your TSP contributions in the future. I realize it might be completely unrealistic to contribute the full $19,500 limit (as of 2020) to your TSP when you are just starting out. After all, there are only so many dollars to go around, right? But that’s ok. The important step is to simply start. Put time to work for you. Your future self will thank you.

(By the way, curious what Conner would have had if he never stopped putting his $2,000 a year in? Over $500,000 at age 62. And he would have contributed only $80,000 over that time frame. Millennials, you own the world’s most valuable asset—don’t waste it!)

 

When you were just a baby FERS, did an older employee come alongside you and tell you to max out that TSP no matter what and put it all in C? If not, do you wish one had? Where would you be today? Here's your chance to pay it back, or pay it forward, depending on your experience. Please share this article with a younger employee in your sphere of influence. You may just be responsible for creating a TSP millionaire...