Millennials, we might have got this one wrong

Daniel Lane
Daniel Lane
Fidelity Personal Investing30 November 2017

“Travel is not going to solve your problems, millennials.”

That’s the title of a tough-love video currently doing the rounds on social media. The sentiment comes from self-made real estate millionaire Grant Cardone and it’s causing quite a stir.

In the clip, Cardone advises young people to get to work and enjoy the benefits later, rather than spending money on travel now.

It made me think, what are our problems and are we really kicking them down the road so we can see the world? And is that such a bad thing or is it just a difference in perspective?

Less money, mo problems

Let’s have a look at the biggest problem, and expense, facing young people in the UK today: housing.

London’s house prices are now 14.5 times the average salary in the capital, with Cambridge (14.3) and Oxford (12.6) not far behind. Figures from the Greater London Authority give us a yardstick here, showing Londoners had to contend with prices just four times their earnings in 1997.

So, while the Chancellor may have cut stamp duty for first-time buyers in last week’s Budget to ease the pain slightly, the measure doesn’t address the key barrier for young people getting on the ladder. First-time buyers now need an average deposit of around £33,000, typically rising to over £106,000 in London according to the Halifax.

There is a tipping point here between the desire to get saving and the feeling that it is even futile to start, and that is exactly where a lot of young people find themselves. Arguably, no other generation has faced this dichotomy to the same extent.

Throw in student loans which are effectively a 30-year graduate tax as well as the need to save for a lengthy retirement and even Sisyphus would find it hard not to opt for a Thai getaway instead.

Go off-piste, stay on track

On that note, according to CNBC, US Millennials are on track to spend $1.4 trillion on travel each year by 2020 and are 23% more likely to travel abroad than older generations. Cardone says that personal finances will suffer because of this and travel should wait, so you can build up the career that will allow travel later on.

We could get into a discussion around the rise of budget airlines, not to mention the benefits of cultural integration at a young age and exploring before thinking about raising a family. The comment sections are quite rightly full of these points.

But, I’m not entirely sure it’s the travel that Cardone has an issue with - it’s more likely to be the preference for instant consumption over delayed gratification that irks him. 

From an investment point of view there is a clear reason why he has brought it up - while probably more severe in its delivery than is useful, the message I think Cardone is trying to express is this: How much you save doesn’t matter as much as when you start saving.

And he’s right. There is a reason why kick-starting your savings (however futile it may seem) and travelling can’t be swapped around and still produce the same results: compound interest.

Let’s give an example:

I start investing £1,000 a year, aged 18 and through a combination of growth and interest I achieve a 5% return each year. By the time I’m 38 I have £34,000 and I stop any further contributions.

My twin sister starts investing the same £1,000 a year at 38 years old, achieving the same 5% growth each year.

When we both reach 60 years old, I will have £102,000 and my sister will have £41,000 even with two more years of saving behind her. The difference comes from the snowball effect that only starting early can give you.

Now, I can’t tell you what you hold dear and, having seen a bit of the world, I won’t argue at all with travel opening opportunities and being good for the soul - I hear you. But maybe the compromise is learning a bit about what you can do for yourself now, before your future self is on the other side of the planet.

 


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