Student loan borrowers have their hands full trying to launch their careers while staying on top of monthly student loan payments. It’s reasonable to assume that student loan borrowers may not have the mental, emotional and financial margin in their lives to give retirement investing the amount of focus that it deserves.
But the problem may be even bigger than most people think. In a survey of 736 people, Student Loan Planner uncovered startling data about the investing habits of student loan borrowers.
The results indicate that a large majority of them are falling behind on the investing front and are largely uneducated on how to use even the most basic investment tools. Note that our readership is much more likely to have a graduate degree and have six figures of debt.
Travis Hornsby, founder of Student Loan Planner, said the survey findings line up with the overall sentiment toward investing that he’s seen from consulting clients:
Student loan borrowers are not saving nearly enough if they want to have the option to retire at a normal age. It seems like a large number of folks are gambling that some politician in the future will bail them out of their student loan situation. Hopefully, Student Loan Planner can encourage borrowers to take control of their own investing future.”
After reviewing the results of the Student Loan Planner investment survey, four major pieces of data stood out from the rest.
- Only 12% of student loan borrowers know how to use a brokerage account.
- Only 18% of student loan borrowers have a brokerage account.
- Only 10% of student loan borrowers have a savings rate above 20%.
- Only 8% of student loan borrowers have saved more than $100k.
Even highly-educated student loan borrowers don’t understand brokerage accounts and aren’t saving enough for retirement. Let’s take a closer look at all four key findings.
Only 12% of student loan borrowers know how to use a brokerage account
The survey found that a small percentage of student loan borrowers know how to use a brokerage account. This would seem to indicate that people are so focused on student loans that they don’t understand other financial products.
College students are experts in one type of financial product — student loans — and they are hyper-focused on getting those loans off their backs.
But when it came to investing, many respondents admitted that they found the topic intimidating and confusing.
Here’s what one respondent had to say:
I have no idea what company to go with, who to trust, how much to pay them, or how much say I should expect to have in the process. I have no way of knowing what a good plan/deal is, or if I am being screwed over. It’s all nonsense to me.”
Another had this to say:
I have an IRA and a 403b, but I’m confused on how to invest in the stock market on my own…”
It’s admirable that borrowers are giving strong attention to their student loans. But getting out of student loan debt is only one part of the equation for long-term financial success. Student loan borrowers need to be better educated on how to invest toward their retirement as well.
Regarding the scarcity of borrowers who understand brokerage accounts, Travis said:
I can’t believe how few people understand what a brokerage account is. That’s the fault of the investment industry that we’re talking about all these acronyms and hot stock tips, but we don’t help folks understand the basic principle that they need to invest outside of retirement.”
Only 18% of student loan borrowers have a brokerage account
Again, Student Loan Planner found this statistic striking. Why aren’t student loan borrowers opening brokerage accounts?
Perhaps they just don’t know that investing independently in a brokerage account is even an option. Travis said, “I don’t think people understand that they can even open one up. No one knows that you can invest outside your 401k unless somebody tells you.”
High student loan totals can’t be helping either. When you have doubts that you’ll be able to save up enough money for a down payment on a home, investing may not even be on your radar.
Plus, student loan borrowers are confused on what they should focus on — investing or student loans. This particular question came up repeatedly in the comments section on Student Loan Planner’s survey.
When asked what they would most like to learn in an investing course, one respondent said this:
How to strategically invest for the future while I pay off my student debt and after it’s paid off as well.”
Here’s another answer:
When it is smarter to pay off loans than to invest or vice versa.”
Want to know what the impact of investing while paying student loans has on the overall return over 40 years.”
Student loan borrowers need more direction so that they can confidently invest in their retirement while simultaneously tackling their student debt.
Only 10% of student loan borrowers have a savings rate above 20%
According to the Department of Labor, in order to be fully prepared for retirement, everyone should be trying to annually save at least 20% of their income.
Yet only 10% of highly-educated student loan borrowers are socking that much away in investment accounts each year. Another 45% said they were saving less than 10% each year and 18% are saving nothing at all.
Only 8% of student loan borrowers have saved more than $100k
According to Fidelity, you should aim to have an amount saved that’s equal to your annual salary by age 30. But student loan borrowers are placing investing on the back burner, and they’re falling behind.
Only 8% of our respondents had saved more than $100k in investment products. And when you dig into the data a little deeper, things look even worse.
- 19% of our respondents had saved nothing toward their retirement.
- 28% had saved less than $10k.
- 30% had saved less than $50k.
That means a whopping 77% had less than $50k saved toward their retirement.
It’s been well-documented that the most important factor when it comes to an investment portfolio’s rate of return is time in the market. In the stock market game, investments simply need to be given time to let compound interest work its magic.
And the average student loan borrower is waiting too long to enter the game.
So what should the average student loan borrower do to get started with investing?
Travis suggested starting with a simple plan:
Open a brokerage account with Betterment, Wealthfront or Vanguard, and make sure there’s at least $100 a month being invested.”
If you need help with navigating the balance between student loan repayment and investing, you can reach out to Student Loan Planner for assistance. One of our consultants would love to speak with you. Book your consultation today.
Student Loan Planner surveyed 736 people from the Student Loan Planner email list, which includes over 13,000 readers. Survey respondents were asked 25 investment-related questions, which probed into not only their investing behaviors but also their assumptions and feelings toward investing as a whole.