The COVID-19 crisis has led to major changes in savings and spending behavior, but some generations are much more affected than others, according to a report issued Wednesday by Hearts & Wallets.
While all generations have seen their goals and expectations altered as a result of the pandemic, millennials might be the most affected, with that generation showing by far the biggest change in employment and plans to purchase homes or new cars, the report found.
Millennials, along with members of Generation X, have also shifted their expectations for retirement. More people now plan to slow their pace of work when they get older, rather than retiring outright, Hearts & Wallets found.
“We’re seeing big shifts in goals that are big at a national level and even more profound in terms of generations,” said Laura Varas, CEO of Hearts & Wallets.
Unemployment has hit millennials particularly hard, Varas said. Fifty-one percent of millennials surveyed by the firm said they have either lost their jobs or are furloughed without pay. An additional 10% are furloughed with pay, and another 2% said they have had their work hours reduced because of the pandemic.
Meanwhile, about 15% of Gen Xers have been laid off or furloughed without pay and 10% have had their hours cut back. Among baby boomers, 7% have lost their jobs or are furloughed without income, according to the report.
The numbers have profound implications for retirement and emergency savings. Many workers have little or no money saved in rainy-day funds, and some people who have recently lost income are inevitably considering early withdrawals or loans from their 401(k) plans, as allowed under the CARES Act.
Hearts & Wallets’ survey was conducted in March among 846 U.S. residents, and the data and research firm compared the recent findings to figures from its existing database. The survey included questions about health, working, income, spending, goals and concerns.
The company is planning to release the data publicly, Varas said.
Among the findings that hint at long-term effects on retirement and the economy are the stark changes in people's plans for homeownership. Among millennials in particular, just 2% said they are planning to purchase a home or other type of real estate, down from 38% in 2019, according to the report.
“Their intent to buy a house completely plummeted,” Varas said.
That will certainly have consequences for the housing market and broader economy. But there is another effect: Not owning real estate leaves people with one less reserve to turn to in retirement, Varas noted. “These things ripple through.”
Across all generations, intentions to buy a new car also fell significantly, with 15% of people saying they have such plans, down from 24% last year, according to Hearts & Wallets.
People also have dropped their expectations for taking vacations or saving to pay for college for someone else.
But another area – debt repayment – has skyrocketed in priority. Forty-six percent of millennials are now prioritizing mortgage payments, up from 20% last year, the report found. Thirty-four percent of millennials said they are prioritizing student loan, car loan or credit-card debt payments.
Whether people will be able to keep up with those payments in a struggling economy is another matter.
More than a quarter of homeowners are worried about defaulting on their mortgages, according to results of a survey published this month by Clever Real Estate. Sixteen percent said they have arranged with lenders to reduce their monthly payments or suspend them, according to that report, and another 12% said they are behind on payments.
Renters are having an even harder time – nearly half of them said they have less than $500 in emergency savings, and 45% said they don’t have enough reserves to cover a full month of rent, according to the survey. Further, half of the 1,000 people that Clever Real Estate surveyed in March said their savings will run out by the end of April.
But emergency savings remains the top financial priority across generations, according to Hearts & Wallets’ report. Forty-five percent of people said that is their top financial goal, down slightly from 47% in 2019.
That's something for advisers to keep in mind when reaching out to clients, Varas noted.
Some investors are also looking to create the best situation for themselves. Roth conversions are top of mind, particularly for Gen Xers, 18% of whom said they are considering a Roth conversion while the stock market is still down, according to the report.
And people with money are looking to capitalize. Among those with $2 million or more in investible assets, 62% have a goal of capital appreciation, Hearts & Wallets found.
“The people who have more assets are interested in buying,” Varas said. “The market just corrected as they expected it to.”
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