Savings and Investment: The challenge of new generations

Young people today face some new challenges with relation to the financial future. For one side, they will live more years than their parents and many more years than their grandparents. We are experiencing a revolution in medicine that is promoting life expectancy significantly.


On the other hand, the government has fewer resources than before and will have fewer resources than today. Government funding which our fathers enjoyed no exist for our children. Ever fewer government resources to finance technical and University education. Nor there will be many resources to finance health plans. In general, whenever there will be fewer resources to cover government subsidies for many years existed in the economy.


And this is not a pessimistic vision. Contrary to what this may seem, I think it's good less government involvement in the economy. In the long term, we will have a much more robust economy. But is a reality that young people begin to face.

Corporate life is also changing. The dream of our fathers was to find a good job, strive, promote and retire in the same company with an indexed retirement plan or something like that. Usually the dream of them becoming a reality.

As we know, that reality no longer exists. Then the young will have to pay more for their education, their health and for all services that the government now subsidizes. They will have to cover their overhead costs such as food, clothing, energy, home, car, education for their children and pay more taxes than today. But also, they will have to save for retirement.

Surely they will have to work more years before retiring, but will also have to save more money, and who will live quite more years. However, one thing they have to take into account today: achieve savings accumulated during its first ten years of work, will be responsible for 60% of their retirement pension.

This statistical data is a very solid and strong. This information should be submitted on paper, in very large letters to every young person begins to work.

Anyone who achieves understand the meaning of this statistical data, it should change many things in their lives. But there is a consequence that would like to highlight. I meanthat young people must save a larger proportion of their income during its first ten years of work. That is, just as they have lower income.

But the second issue, equally important is to answer the question: What do I do with the income saved? For many years, specialized firms and financial advisers recommend almost the same recipe. Diversify and invest in instruments "very safe". Instruments that ultimately were not very safe and generated a return of 4% per year.

The second bad news for young people is that 4% per annum will not be sufficient to generate an adequate retirement. At least this will not be a sufficient return for the income they save during the first 15 or 20 years of work.

How they will live longer and have less government support, need to have a volume much larger money saved to generate an adequate monthly income. This will only be achieved if they invest their money in a smart way. Most of the paradigms of the stock market (and financial market) are beginning to fall. It is likely that in the coming years the concepts of diversification and security changed dramatically. And to benefit from these changes need to be vigilant.