Millennials in Asia are expected to carry mortgage debt into retirement or even run out of money as they face a substantial cash risk during their later years,, found a new study.
While 90 percent said they expect to be able to maintain or improve their standard of living into retirement, but nearly 30 percent expect to run out of money later on in life, the study, conducted by Manulife and surveyed investors born between 1984 and 2004, fund out.
“Asians used to be known as the prudent consumers with the lowest levels of debt,” Roy Gori, president and CEO of Manulife Asia told CNBC. “Today, that’s no longer true. In some cases, the level of indebtedness we see in Asia either equals or exceeds that of U.S. consumers, measured by household debt relative to disposable income.”
Their ability to invest and prepare for retirement would be constrained as nearly four in ten surveyed noted they expect to financially support both their parents and children at the same time.
“Economic growth will be far slower than that enjoyed by their parents,” Gori said, citing slower projected income growth for Asian millennials as compared to gen X and baby boomers. He added that millennials in Hong Kong, China, Singapore, Taiwan and Thailand are most likely to face this crisis.
“They are the sandwich generation — no sooner have they financed their children’s education, they have to support their aging parents.”
The bedrock of retirement for generations has been familial support for most Asian cultures. But declining household sizes and rapid urbanization is now causing a shift with aging populations.
Little opportunity would be available for millennials to plan their own personal retirement due to slower economic growth, coupled by longer life expectancy of their parents, the sty noted.
“This is a double-edged sword because millennials themselves are less likely to receive financial support from their own children when they are aging,” Gori said.
Around 50 percent of investors across Asia are putting their money in bank deposits, according to Manulife. Compared to the U.S., where it’s only around 20 percent, as high as nearly 80 percent of overall financial assets are put in bank deposits in Indonesia.
“We’re in a world of zero interest rates, a situation that has persisted since the global financial crisis in 2008,” Gori said, saying he thinks low rates could last another five years.
“A total of 13 years of zero interest rates is a substantial chunk of a millennial’s career lifetime,” Gori said.” “It means that a lot of their savings that go into bank deposits will earn negative real returns. Some millennials will never recover from that.”
Millennials need invest more heavily in equities and need to take more risks, according to Gori
“Historically, the way Asians have invested is that a large part of their personal wealth was invested in real estate and then whatever other money they had would have been invested in liquid cash deposits,” Gori said.
And especially in Asia’s more developed markets, that mentality is no longer a realistic savings strategy, he said.
“There’s just no chance that bank deposits will grow in a way that offsets the growth of…expenditures,” he added.
(Adapted from CNBC)