Compared to the post-war ‘baby boom’ generation, twentysomethings like to gripe that they’ve got it tough. No free university education. House prices at sky-high levels. A tight job market. And mortgage deposits that bring tears to the eyes.
Well, yes. But compared to the baby-boom generation, twentysomethings have something that is infinitely more valuable: time.
Yes, time. Time to save, time to invest, and time for those savings and investments to grow to sums that baby-boomers today can only dream of.
Penury beckons
Because the sad reality for many baby-boomers is that despite their early advantages, they’ve left it too late to start building real financial wealth.
In fact, apart from the wealth tied up in their houses, many baby-boomers are surprisingly exposed to today’s environment of low interest rates and plummeting annuity rates.
Today’s twentysomethings, on the other hand, live in an internet-enabled world where financial advice and finance services have never been easier — or cheaper — to come by.
And, as I say, they’ve got the investing timescales to turn those advantages into real wealth.
How much wealth? Let’s do the sums.
Tiny acorns
Meet Sally, who’s 25. She’s putting £100 a month into the stock market, conservatively expecting a 6% return including dividends, which she reinvests.
After ten years, she’s accumulated £16,470 — not bad. Now, let’s assume that she stops there, and simply leaves the £16,469 to continue growing until she retires at 68, ticking along at 6% a year.
Essentially, her nest egg is now worth £115,864 — even without another penny added. And if she hadn’t stopped, but carried on saving £100 a month from 25 to 68? Believe it or not, Sally is sitting on a cool £243,463 — almost a quarter of a million pounds.
Dash for cash
Now meet Simon, aged 58 — a classic baby-boomer; in other words, born in 1955.
Retirement beckons, and Simon realises he needs to save a little more for his old age.
So he puts away £100, just as Sally is doing. But ten years later, on retiring at 68, all he has to show for his efforts is £16,470.
He’d love to see it grow further. But at 68, he simply hasn’t got the investing timescale remaining. At 68, his race is run.
It’s easier than you think
Now, many twentysomethings will immediately say that putting aside a further £100 a month — on top of such things as paying back a student loan, saving for a deposit on a house and general day-to-day expenses — is impossible.
I’ve news for them. It isn’t. All it requires is a shift in priorities.
Forget such things as packed lunches and foregone lattes: it’s too easy to slip back into bad habits. But the reality is that twentysomethings have plenty of other savings opportunities. Computer gaming, for instance. Going out. Takeaways. Pricey satellite television packages. Fancy phone contracts. And so on, and so on.
Put another way, that £100 a month is £25 a week — or £3.30 a day.
And is £3.30 a day of savings really that impossible? I doubt it.
Ostrich syndrome
The sad reality, though, is that most twentysomethings will probably carry on frittering away that £3.30. Living for today is easier, and more enjoyable.
But in doing so, they’re saying goodbye to a nest egg worth almost a quarter of a million pounds.
Which, as mistakes go, is a pretty big one.
