Teens Don't Save for Retirement – Are You Surprised?

According to an Earth-shattering study, teenagers don’t save for retirement. From the CNN article:

Teenagers flipping burgers, stocking shelves or studying for finals don’t think about their retirement.

Sarcasm aside, I don’t think anyone should be too shocked by these findings. Look back to your high school days and whatever part-time job you had. If you were working a few hours a week after school you were more than likely just trying to scrape together enough money to put gas in your tank or to buy that new Led Zeppelin album. The furthest thing from your mind was saving for retirement.

In addition, most jobs that teenagers have won’t even have an option for saving in a 401k or similar account, so it isn’t an easy thing for a young person to do. Just because a teenager working part-time might not have easy retirement savings options through their employer doesn’t mean they should ignore the issue.

Some Cause for Concern

While the article does a good job at pointing out the obvious, there are a few startling statistics.

The GAO report estimated 36.8 percent of today’s 17-year-olds will have no money in a 401(k) or similar plan when they retire. The numbers will be worse for low-income workers: 63 percent of them will have zero dollars in a 401(k)-type account when it comes time for them to retire.

Now this is a bit alarming–over 35% of teenagers today will retire with no money saved in a retirement account when they retire. At 17, they likely have 45-50 years until retirement. Can anyone honestly say that Social Security in some form or another will be around in 50 years to provide any reasonable retirement income? And with the demise of the fat pension plans offered by employers coupled with the fact that most people today change jobs a dozen times throughout their career, having no money saved for retirement is a sure way to poverty.

This doesn’t mean that your childhood should be marred by concerning yourself with saving for retirement when you’re more concerned with who to take to the prom, but the problems come when this lack of concern carries on beyond working the night shift at the Burger Shack. Once someone begins to have any sort of steady income in college and beyond, it should become a priority to begin saving at least something in an employer-sponsored plan or through an IRA. It doesn’t have to be a lot and you don’t have to max out your contributions because what is more important than the money is simply getting into the habit of automatic saving. That habit will carry on throughout your life and ensure you will be on your way to building wealth.

Do Your Part to Help

If you currently have children or plan on having children, it is up to you to make sure they don’t become one of the 36% who will retire without a penny saved. Our schools won’t educate them as to how important it is to save for retirement, so it is up to you. And remember, children are impressionable, so lead by example. Practice what you preach and be open about it so that they can easily see how important it is so they can follow your actions.

Author: Jeremy Vohwinkle

My name is Jeremy Vohwinkle, and I’ve spent a number of years working in the finance industry providing financial advice to regular investors and those participating in employer-sponsored retirement plans.

21 comments
David Wilson
David Wilson

Thanks for the post, great information. People forget that making small changes can make a huge difference in their overall financial status.

Alfred Kelley
Alfred Kelley

Hello everyone. I am an 18 yr old black male out of houston,tx. And I would like to make this short and sweet. I am thinking about retirement. I have since I was 16, when i started reading 5 hrs a day about money. Which I still do. The great news is I don't have to wait till Im 60 till I retire. I will retire when Im 19, which is 9 mths away from now. Since April 2008, millionaires have been investing my money. And I earn 2.67 percent interest a day, plus my initial investment. This is an exciting time of my life! And It wasn't so much of what I knew that got me here. It was My attitude, that told me,"Don't ever give up, until you become rich." That put me in the right place at the right time. Which has made all the difference!!! Thankyou! Sincerly Alfred Kelley!

jonny-b
jonny-b

I agree with Kristen here, our retiement age is being oushed up and state pension reduced in the UK, true retiremnet wont be an option by the time is reach my twilight years. I just hope that if i ever need a care home that my assets still cover the cost of care otherwise the burden will fall on loved one elsewhere and i don't want that to be the case.

Kristen O
Kristen O

Teens aren't saving for retirement because they don't expect to be able to retire. There isn't going to be Social Security for us, and we're NOT going to retire, instead we'll probably just sue anyone who tries to forces us to because of age discrimination. We're not going to have the money, because we just don't make that kind of money, and with the economy the way it is, we don't expect to ever make that kind of money. Even if we saved all of our lives, we still probably wouldn't have the money. Even if we have the money, by that time, our currency will be so inflated that our money will not be enough to retire on.

Solve these problems first, THEN complain about the mindset of today's teens.

Sero
Sero

Speaking as a sophmore in high school...Yeah. I'd thought some about my future before just recently (recently, went on a binge of looking for stuff on retirement planning on a whim. Glad I did.), but I know the majority of my peers don't.

Our teacher showed us some stuff on credit card debt in Street Law, a semester long elective class that tries to give you a general cross-section of the American legal system, criminal and civil, but I got the impression it was on personal initiative, not part of the curriculum.

I would /dearly/ love to see a year-long finance class as a required course.

War Gold
War Gold

Financial education is the key here. We've teachers who didn't have to face the same climate (at the same age) that exists today, so said education needs to be to both student and teacher.

I didn't start saving until 23 and that decision was based on advice from an elder. Very glad I took it on board.

ChristianPF
ChristianPF

Our schools need to do a better job of providing some sort of a financial education - we push our kids through teaching them how to be employees and make money - with little emphasis on what to do with it once they make it.

Minimum Wage
Minimum Wage

As a teen, I saved for college. Shoulda skipped college and just put it in a retirement fund.

I've don the math, and since I have no retirement fund and my expected Social Security benefits will not be enough to live on, I fully expect that I will never be able to retire.

rstlne
rstlne

I didn't have a 401K either when I was a teen, but I opened one at the age of 22. It's important to start somewhere.

Stock Market Investing
Stock Market Investing

Wow! 35%+ will have zero 401(k) savings. If you didn't quote the source, I wouldn't believe that statement for a second.

But considering the intense consumer culture in the USA, teenagers struggle to "keep up with the joneses" just like everyone else.

Is this another argument for personal finance taught in high school?

Rick
Rick

I am not at all surprised. This generation only cares about what happens now...today. There is a strong tendency towards instant gratification, with total disregard of what happens tomorrow. They only live for today.

Lazy Man and Money
Lazy Man and Money

Like Meg, I wonder how they know what 17 years are going to do when they retire. I don't think a single 17 year old knows. If they interviewed 17 year olds on their future plans, I wouldn't trust it because people's priorities change over the years.

ses5909
ses5909

I definitely think it is the parent's responsibility to teach their kids about saving and finance in general. If you start at a very early age by giving them piggy banks, and then setting up an account for them, etc., hopefully it helps to show them the importance. I would actually like to see more posts like this Jeremy. Us Gen X'ers are having families of our own and I know I would love to see more posts on teaching your kids about finance.

The Dividend Guy
The Dividend Guy

Interesting article and even better comments. When I first read the post, my first thought was that we were seeing another "study" funded by the big fund companies trying to scare people into savings. Even though the study was funded by a government study, I am still not sure what their mandate was?

That being said, my 4 and 6 year old practice investing as part of their allowance program.

The Dividend Guy

Todd
Todd

"The GAO report estimated 36.8 percent of today’s 17-year-olds will have no money in a 401(k) or similar plan when they retire. The numbers will be worse for low-income workers: 63 percent of them will have zero dollars in a 401(k)-type account when it comes time for them to retire."

The above quote is quite real. The reason I know this is that I work as a 401k specialist for one of the largest financial investment companies in the world. The age group that ranges between 18 to 26 typically will not participate in their 401k plans with their employer. The reasons I hear from this age group is that they think they don't need it now. The fact is they typically do not look further than a year in the future, and in the long run this is going to hurt them.

All this, I believe stems from a lack of basic financial education. That is why I have started a blog to provide some basic education on retirement savings plans.

Frugal pursuit
Frugal pursuit

Retirement may be far away for teens but do they save for anything? My part-time high school job paid my parents for the use of their car and my purchases of boy-band records but also for my college education. Is education a poor investment compared to saving for retirement?

It is a rare individual who thinks about retirement in their teens. I did not consider it until I was in my 20s. Yes, it would be great to put money away for retirement at 16 (more time to double) but teens are thinking short term. Get young people in the saving habit, share your insight with them and I am sure they will save for retirement. It may not be until they are 22 but better than never. The GAO report seems like fear-mongering to me.

Early Retirement Extreme
Early Retirement Extreme

I don't find it shocking that teenagers don't save. I do find it shocking that many of them have consumer credit cards. It is a lot easier to become used to saving if one is not used to being in debt and paying bills all the time.

With respect to social security given that there are so many that don't save it just might be that they are going to control a significant vote in favor of "transferring" some money from those who did save e.g. higher tax rates.

Honest Dollar
Honest Dollar

I went to the GAO website and found the actual report (http://www.gao.gov/htext/d088.html). The study was based on a sample size of less than 5,000 individuals. It excluded self-employed individuals (but I'm not sure how inclusion of that group would affect results). The population that GAO uses to model future pension savings works a median of less than 30 years, retiring at 55, with a median "steady" earnings of $46,122 (which is less than the median income rate of $48,000 according to the Census Bureau). Those with low incomes are, according to the study, eligible for a 401(k)-type plan for only 10 years of their working careers.

All of the above may be correct, but the study doesn't really indicate how this is different from the way things were ten or twenty years ago. With the decrease in defined benefits (pension) plans, perhaps people are worse off. But the low-income workers were probably screwed under DB plans, too.

In a recent survey cited by the GAO in its study, only 38.9% of working population is actively participating in a 401(k)-like plan at any one time. That means 61.1% of the workers surveyed were not participating in a 401(k) or a similar plan. Does this mean that 37% of current workers (i.e. not the projection, but right now) will have $0 in retirement? The study isn't clear, but my point is that the dire future painted by CNN isn't much worse off than today.

Look, I think this is a serious issue. I think there needs to be more financial education, especially for young adults. I think employers should automatically enroll employees in retirement plans, if they are available. But I don't think we should all panic because the media blows up one government report. CNN could have taken the time to explain the report and why the GAO doesn't ever highlight in the report that the situation is getting worse. (Of course, that article probably wouldn't be nearly as interesting.)

Dave
Dave

My first thought was the same as Meg's: How does the GAO know what kids today will save? But I noticed that they did say "in a 401(k) or similar plan". To me that makes the number much more plausible, though still perhaps a stretch considering the rise of automatic enrollment in retirement plans.

When you think about the number of adults today that aren't investing in their 401(k) and who don't know the first thing about them, how will their kids learn? Schools generally teach nothing practical about money or investing and the majority of people don't exactly frequent personal finance blogs.

Stories and statistics like this highlight the desperate need for basic financial education in schools. Most people won't teach themselves, so if the schools don't teach them something, who will?

Meg
Meg

How does that survey know what today's teens will have saved in 50 years?

That aside, I'm happy to report that myself and two of my three of my sisters opened Roth IRAs in our teens (mental note: bug my youngest sister to open one when she gets her first job this summer). I'm sure this is uncommon, but it does happen.

Granted, I could afford to save in college because my education was paid for, but I still could have blown all my part-time income. I am so glad I saved what I could instead, since it never gets any easier to save--even though as a student you always assume it'll be easy to save once you're earning more.

Mrs. Micah
Mrs. Micah

And I can't even figure out whether the whole thing is humor or just parts.

I'd tell my teenage self that she was going to marry the most wonderful man in the world, but that he had mega student loans, so could she maybe save a little bit more (though I did decently). Little more motivation. :)