How to Encourage Young Workers to Start Saving

Getting young savers to make the initial commitment to start saving can be difficult. Consider a recent college graduate making $50,000 per year. If they save the recommended 10-15% of their income, that may leave very little for fun spending. The likelihood of them continuing to save decreases if they can't enjoy much of their income, especially during the years with lower income. If they do give up on savings early, it can be a tough habit to regain, even as their income increases over their career. Because of this, I think it's great to encourage young investors to get started, no matter how small the amount. The power of making a commitment and being able to stick to it is significant.

I once heard of a personal trainer who required new clients who hadn't been active in years to show up, do one set, and then drive home. He did this for a week, then gradually increased it to a few sets. He continued this until they had worked up to an hour workout, 4-5 days a week. His clients had tremendous success because they got used to the habit of "showing up."

I believe this same psychology can be used to get young investors to commit to investing. While saving 3% of your income is not enough, it can be a good starting place. Consider an investor who starts at 3% on a $50,000 salary and then increases it by just 1% per year until they reach 10% savings.

JPMorgan 2023 Guide to Retirement

Over a 40-year career, they accumulate $2M (assuming 7% growth with a 5% 401k match). Surprisingly, that is only 10% less than the investor who started at 10% right out of the gate. Just getting started and then making small, incremental increases can make a big impact if given enough time.

Happy Planning,

Alex

This blog post is not advice. Please read disclaimers.