How Generation X Can Overcome Being The Financially-Neglected Middle Child

How Generation X Can Overcome Being The Financially-Neglected Middle Child

September 2016

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Is Generation X overlooked when it comes to financial security? According to a Pew Research article, Generation X is “America’s neglected middle child,” overshadowed by its extroverted, overspending older brother Boomer and its student-loan burdened younger sister Millennial. Why isn’t anyone paying attention to Gen X’s money woes?

Our recent generational research shows that Generation X has problems too: they are way in debt, falling behind in home ownership, under-insured and woefully under-prepared for a retirement they will have to fund themselves. To top it all, this generation of latchkey kids who was financially devastated twice – once when the tech bubble burst and again during the Great Recession – doesn’t have much trust in Wall Street, the financial services industry or in financial advisors. What are the biggest financial challenges Gen Xers face, and how can they surmount them?

Retirement Is On You

As Generation X heads towards the middle years of life, they are confronting the reality that the responsibility and risk of funding retirement is squarely on their shoulders.  In our research based on data collected anonymously from a sample of 18,169 employees who used our financial wellness programs, we saw that Generation X had a small 2-point increase in the percentage of those who were confident they are on track to replace 80% of their income in retirement, the only one of the three generations surveyed to show progress. Yet lack of retirement preparedness is staggeringly high, with nearly 4 out of 5 employees not confident they are on track.

Seventy-three percent cite retirement planning as their top financial concern. Debt (55%) and cash management (51%) follow, with those struggles creating a cascading effect which limits employees’ ability to save more. Coupled with the disappearance of traditional defined benefit pension plans and funding shortfalls in federal entitlement programs, this risks Generation Xers approaching retirement in even worse shape than the Boomers.

If you’re a Gen Xer, the most important thing you can do today is to run a basic retirement calculator to see if you’re on track to replace 70-80% of your income in retirement.  Seriously, if you’ve never done this before, stop reading and do this now while you’re thinking about it.  If you’re not on track, don’t panic.  You still have time to get your retirement game on, putting away as much as you can to catch up over the next few decades.

Increase the percentage you are contributing right away to your retirement plan at work (or other options if you are self-employed), even if it’s just 1-2% more initially. Sign up for your plan’s automatic rate escalator, which will increase your contribution rate incrementally every year until it hits a designated limit. Your employer can be your best financial services provider, making it easy for employees to save more with tools like including automatic 401(k) plan enrollment and matching contributions. Take advantage of them. Nobody can do this but you.

Banish Debt Once and For All

Many Gen Xers are spending more than they earn. Sixty-four percent of financially distressed Gen X employees surveyed feel overwhelmed by the amount of debt that they have, and 1 in 4 often incur late fees. Twenty-eight percent have dipped into their retirement plans through a loan or hardship withdrawal as a source of cash, and 49% don’t have a plan to tackle their debt.

If high interest credit card or loan debt is keeping you up at night, know that this does not have to be a permanent situation.  If your employer offers a workplace financial wellness program or an employee assistance program that includes financial counseling, take advantage of it.  Our research shows that repeat, live interactions with a financial coach dramatically improve employee financial wellness.

If you don’t have access to a financial wellness program or are more of a do-it-yourself type, start by using this Debt Blaster to inventory your debt and model how small additional payments can help you pay it off sooner. Where’s that money going to come from? It may be simpler than you think. Paying an extra $300 per month towards your credit cards means finding $10 per day in expenses you can cut, $5 per day each for a married couple.  To do that successfully, most folks find it helpful to be more mindful of their spending by retiring their credit cards from their wallets and tracking expenses using an easy Expense Tracker or a free app like Mint.

Don’t Risk Everything

Generation X’s struggle with day-to-day money management might be affecting their ability to protect themselves and their families with adequate insurance and estate planning. This is particularly problematic. Only 23% of Gen Xers have prepared legal documents such as a simple will and have made guardianship provisions for minor children. Slightly more than half (53%) carry enough life insurance and long-term disability insurance (54%) at a time in life where they are most likely to have kids at home. It seems like the distrust of the financial services industry contributes to Generation X being under-insured.

If you’re not sure if you have the right amount of life or disability insurance, you can use this calculator to estimate a range. As with retirement, your employer is often your best financial services provider for insurance. During your next benefits open enrollment period, see if you can increase your protection if needed through payroll deductions in a cost effective way.  You may be surprised by how affordable it is.

If you don’t have a will, the first place to look is your employee assistance program. Many EAPs include access to free or low cost will preparation tools. You may also have a voluntary legal benefit, paid for through payroll deductions, which you can use to hire an estate planning attorney.

Learn Investing Basics

Twenty-four percent of employees surveyed didn’t think they knew investment basics, and another 45% knew them but didn’t know how to apply them. In a way, this is a surprise when you consider that the financial news network CNBC was founded in 1989, democratizing financial education. This generation, much more so than Boomers, has had access to free financial information their entire lives via television, radio and the Internet.

Distrust of the financial services establishment appears to be a factor. As our research describes, “Many members of Generation X notoriously grew up as “latch key” kids and developed a strong sense of self-reliance, a pragmatic outlook, and a cynical suspicion of authority. They prefer to do their own research online before speaking with a professional and to choose from among options rather than being told what to do.”

Take advantage of any investing education that your employer provides, either through the retirement plan provider or your financial wellness program. Don’t be afraid to ask questions.  Online, unbiased sites such as FINRA’s investor education program, the Consumer Financial Protection Bureau and Financial Finesse’s Financial Wellness @ Work daily blog are great resources for learning more.

As a self-reliant Gen Xer with competing demands on your time from work and family, you may find that taking a hands-off approach to investing is the best approach. Recently, many employer-sponsored retirement plans have moved towards including low cost index funds, fixed asset allocation funds and target date funds, as well as automatic re-balancing tools, to make the investing process easier for employees. You may be able to “set it and forget it,” in terms of your retirement investments.

Generation X may be the middle child, but it’s time we started focusing on what members of this generation need, too.  It’s not too late. There is still time to get things back on track.

 

This article was written by Cynthia Meyer from Forbes and was legally licensed through the NewsCred publisher network.

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