Millennials Need a Better Tool for Saving

Honolulu Star-Advertiser // Island Voices

April 29, 2018

Unfortunately, like many people of my generation, I have no retirement savings.

I want to save. But life gets in the way. There are bills, unexpected expenses and for some of my friends, student loan payments.

A recent study found that I am not alone. About 66 percent of millennials have no retirement savings.

Most millennials who are saving have something in common—access to a retirement savings plan at work. More than 94 percent of millennials who are eligible participate in retirement plans offered through work.

The rest of us—some like me, who freelance in the gig economy, others who work part-time jobs or who work for small businesses that can’t afford to offer retirement savings—have no way of saving through payroll deduction. That’s unfortunate because you are 15 times more likely to save if the money is taken out of your paycheck, before you get a chance to spend it.

A bill in the Hawaiʻi State Legislature, Senate Bill 2333, would have taken the first step to create a Hawaiʻi Saves program, an easy way for businesses, especially small businesses, to offer simple retirement savings to workers.

AARP estimates that 216,000 workers in Hawaiʻi—of all generations—cannot save at work. That’s about half of all private sector workers. If you are a business owner or entrepreneur, you know why this is true. It’s just too costly and complicated. Most small businesses don’t have the time or the money to manage workplace savings plans.

Hawaiʻi Saves is based on OregonSaves. The program is less than a year old and already 10,000 workers have saved $2.3 million. At least nine other states are setting up similar programs.

It’s a public-private partnership—much like 529 college savings plans that states, including Hawaiʻi, offer. The state selects a private financial services company to manage the program, which could be offered to businesses at no cost. All the business has to do is sign up and workers can start saving. Also, fees for savers would be low, so workers can save more.

The money is not kept or managed by the state. The accounts are owned by workers and can travel with the worker if he or she changes jobs. That’s especially useful for millennials, who are likely to change jobs several times during our lifetimes.

If more people have savings, safety net programs will be more sustainable and available to millennials when we are ready to retire. Another study estimates Hawaiʻi taxpayers will save $32.7 million over 15 years—on programs like Medicaid, Supplemental Security Income, food and rent subsidies—if low-income workers can save enough money to generate an extra $1,000 a year in income during retirement. The combined state and federal tax savings is $160 million.

But the biggest benefit for millennials saving money for retirement is compound interest. Properly invested savings should double every seven years and grow exponentially. For millennial and Generation Z workers, that means a little bit of money now will turn into a lot of money later. Just $1,000 invested in your 20s should grow to more than $45,000, even upwards of $100,000 at retirement.

Every year that we wait to set up a Hawaiʻi Saves program means less time to save and fewer dollars for retirement. Senate Bill 2333 died at the last minute in conference committee. But it will be back next year. The need is still there even if the political will is not this year.

It’s time for all of us, not just millennials, to take charge of our own future. Senate Bill 2333 is a step in that right direction.