Reference ‘Points’

Several years back, I was talking with a colleague about the current state of the U.S. economy – and as a comparison point, I pointed to the mid-1980s. “I wasn’t even born then,” she said. At which point I realized that what I considered to be a relevant point of comparison was, to my coworker, ancient history.

That memory comes back to me every year with the release of Beloit College’s annual “Mindset List.” As that coworker discussion reminds me, a lot can change in (just) 18 years, but these same 18 years also make up the mindset – or “event horizon” ­– of today’s entering college students.

The kids many of you just dropped off at college – the Class of 2022 – were (for the most part), born in 2000, the first year of the new millennium. The folks that compile this list know that those differences in experience and points of reference have an impact on the (perceived) relevance of the points we might try to make in college teaching – and even in terms of financial matters, saving, and, yes – retirement.

For example, those students that were just dropped off at college:

• Have always been able to refer to Wikipedia.
• Have always known a world where U.S. troops were stationed in Afghanistan.
• Will never fly TWA or Swissair airlines (much less Eastern Airlines or Piedmont Airlines).
• Have always seen Priuses on the highways.
• Have never used a spit bowl in a dentist’s office.
• Have never had to deal with “chads,” be they dimpled, hanging or pregnant.
• Have always used lightbulbs that were shatterproof.

When it comes to retirement, the Class of 2022 also stands to have a different perspective. For them:

• There have always been 401(k)s.
• There has always been a Roth option available to them (401(k), 403(b) or IRA).
• They’ve never had to sign up for their 401(k) plan (since, particularly among larger employers, their 401(k) automatically enrolls new hires).
• They may never have to make an investment choice in their 401(k) plan. (Their 401(k) has long had a QDIA default option to go with that auto-enroll feature.)
• They’ve always had access to target-date funds, managed accounts, or similar vehicle that automatically allocates (and, more significantly, re-allocates) their retirement investments.
• They’ve always had fee information available to them on their 401(k) statement. (It remains to be seen if they’ll understand it any better than their parents.)
• They’ve always been able to figure out how much they need to save for a financially secure retirement (though they may not be any more inclined to do so than their parents).
• They’ve always been able to view and transfer their balances online and on a daily basis (and so, of course, they mostly won’t).
• They’ve always worried that Social Security wouldn’t be available to pay benefits. (In that, they’re much like their parents at their age.)
• Many have never had to wait to be eligible to start saving in their 401(k). (Their parents typically had to wait a full year.)

Despite those differences, the class of 2022 will one day soon be faced with the same challenges of preparing for retirement as the rest of us. They’ll have to work through how much to save, how to invest those savings, what role Social Security will play, and – eventually – how and how fast to draw down those savings.

But perhaps most importantly, they’ll have the advantage of time, a full career to save and build, to save at higher rates, and to invest more efficiently and effectively.

And, with luck, have an advisor available to answer their questions along the way.

- Nevin E. Adams, JD