How millennials can help themselves -- and their parents

A recent survey from Fidelity Investments offers a wide-ranging portrait of millennials’ money-related habits. And while some of its results show that many millennials do indeed mooch off mom and dad and often move back home to live with them, it also provides a different spin on those “boomerangs” who return to the nest after initial attempts to fledge fail. 

And it belies the stereotypical image of the unemployed millennial who plays video games in their parents’ basement. 

That’s the case for the many millennials and their parents who are structuring intentional boomerang arrangements that can provide substantial benefits to both parties.

While not denying that many millennials have financial problems, Fidelity’s Millennial Money Study also reports that a lot of them have found creative ways to deal with their challenges. A number of them have jobs, live with their parents and are using the money they save on rent to pay off student loans, build an emergency reserve, save for a down payment on a house or save for retirement.

Here’s some evidence from the Fidelity study on these positive outcomes, including an informative infographic:

  • In 2016, 21 percent of millennials were living with their parents, up from 14 percent in 2014. Two-thirds of Fidelity survey respondents report it’s acceptable for children to live with their parents.
  • Eighty-five percent of millennials report having some form of savings in 2016, up from 77 percent in 2014. 
  • Fifty-nine percent of millennials report having an emergency savings fund with an average of $9,100 in it, equal to an estimated six-and-a-half months of income on average.
  • Sixty percent of millennials report saving for retirement, up from 47 percent in 2014.

Fidelity’s Workplace Investing business reports that millennials are contributing an average of 6.8 percent of their pay to 401(k) plans, up from 6.6 percent in 2015. Add matching contributions by employers that average 4 percent of pay, and many millennials may be nearing or meeting target retirement savings guidelines that might be appropriate for them.

The results of Fidelity’s study are consistent with the results from a recent Transamerica study that shows millennials are saving a median 7 percent of their pay toward retirement.

There’s more good news indicating millennials are building long-term retirement savings: Fidelity’s Workplace Investing business reports that almost two-thirds of them invest 100 percent of their retirement savings in target-date funds. These funds typically have high allocations to stocks, which is appropriate given that retirement is decades away for most millennials.

Of course, parents often take satisfaction in helping their adult children become successful in life. But there can be additional benefits. The Stanford Center on Longevity (SCL) recently published its Sightlines report, which measures the steps that Americans of all ages are taking to improve their longevity and well-being. This report documents the importance of social connections.

A little more than half of Americans of all ages report taking the beneficial “social connectedness” actions identified by Sightlines. One particularly disturbing trend, however, is that today’s 55- to 64-year-olds are less likely to report these valuable social connections compared to their predecessors 15 years ago.

Simply put, millennial boomerangs can help provide their parents with valuable social connections and support as parents approach and enter their retirement years.

John Sweeney, executive vice president of retirement and investing strategies at Fidelity, makes an intriguing suggestion for millennials and their parents who are structuring intentional boomerang arrangements. He recommends that parents consider a modest, below-market rent for their millennial or ask for help with paying for utilities. This would help millennials become accustomed to the discipline of paying a monthly rent and/or utility bills, which they’ll undoubtedly encounter once they leave home. 

In addition, parents have the freedom to put this money to good use, either adding to their retirement savings, or saving it for a future gift to their children for important goals, such as buying a home or starting a family.

Compared to prior generations, millennials have closer and more robust relationships with their parents. It only makes sense that they help each other with the significant challenges they each face at these critical junctures in their lives.

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    Steve Vernon helped large employers design and manage their retirement programs for more than 35 years as a consulting actuary. Now he's a research scholar for the Stanford Center on Longevity, where he helps collect, direct and disseminate research that will improve the financial security of seniors. He's also president of Rest-of-Life Communications, delivers retirement planning workshops and authored Money for Life: Turn Your IRA and 401(k) Into a Lifetime Retirement Paycheck and Recession-Proof Your Retirement Years.