The traditional investor life cycle includes three phases. It’s common for younger people to invest for growth, then transfer to more conservative holdings as they grow older, with the goal of creating stability, and finally, after their working years conclude, convert their savings into retirement income, which is the distribution phase.1
Today, two out of three millennials between ages 23 and 35 have at least one form of long-term debt (e.g., student loans), and one out of three have multiple long-term debt obligations.2 As a result, the investment lifecycle often has an initial fourth stage: recovery. Many millennials are working to pay off their substantial debts before they even think about investing for growth.3
While this may appear to be a “young person’s problem,” it has several widespread impacts. Many millennials tend to be saving rather than investing after getting a late start on their careers post-recession. To help give their children a boost where the economy failed them, many parents provide ongoing financial support. For example:4
- 29% help pay for health insurance
- 28% help out with a home purchase or rent
- 26% contribute to auto insurance
- 23% pitch in for utilities
The more financial support children receive, the less money their parents and grandparents may have available for retirement income or to invest for retirement. While their offspring may have time to make up for losses, too much financial support now could adversely impact some parents’ future lifestyle and retirement goals.
If younger generations spend too much time in the recovery period, they may get behind in home buying. This also narrows the market for older generations looking to sell. In fact, following the recession, the share of 18- to 34-year-olds who own a home has fallen to a 30-year low.5
No matter where you fall in this new model of the investment life cycle, it’s clear that people of all ages and incomes have an integrated impact on the economy — and even our personal finances. The phenomenon mirrors the way the global economy can influence different countries, including those with sound economic footing.
1 Missy Pohlig. SEI. Aug. 16, 2016. “Breaking the Mold: How Millennials Have Altered the Investor Life Cycle.” http://seicblogs.com/advisor-practice-management/uncategorized/breaking-the-mold-how-millennials-have-altered-the-investor-life-cycle/. Accessed Oct. 12, 2016.
4 Christine Idzelis. Investment News. March 9, 2016. “Risk-averse millennials relying on parents for financial support, UBS survey shows.” http://www.investmentnews.com/article/20160428/free/160429931/risk-averse-millennials-relying-on-parents-for-financial-support-ubs. Accessed Oct. 12, 2016.
5 Derek Thompson. The Atlantic. Aug. 24, 2016. “Millennials: The Mobile and the Stuck.” http://www.theatlantic.com/business/archive/2016/08/millennials-the-mobile-and-the-stuck/497255/. Accessed Oct. 21, 2016.
Text Pull for Dollars & Sense article
“The more financial support children receive, the less money their parents and grandparents may have available for retirement income or to invest for retirement.”