Millennials’ love of flexibility is accelerating a worldwide shift from secure “nine to five” jobs towards freelancing and short-term contracts.
The 2017 Old Mutual Savings & Investment Monitor also found a growing trend in Slashers - South African millennials employed full time who are also taking on sideline jobs or starting a business.
A study by software company Intuit predicts that, by 2020, 40% of American workers will be independent contractors.
The 2017 Deloitte Millennial Survey shows that 43% of South African millennials are ready to embrace the gig economy, as this trend is now called.
“While this way of working may unlock new opportunities for young South Africans, and help to address unemployment, it’s important to also think of potential financial implications or risks and to plan around these,” says Ntombi Tisani, Head of Marketing at Old Mutual Personal Finance.
Foremost among these risks is the fact that freelancers are not obliged to contribute to any retirement fund the way permanent employees do.
In the formal employment sector, retirement savings are often a condition of employment.
The 2017 Old Mutual Savings & Investment Monitor (OMSIM) found that 45% of Gen Y (born between 1980 and 1995) have neither a pension fund nor retirement annuity in place.
“With nothing compelling them to make monthly payments towards their long-term financial wellbeing, there is a risk that the millennial generation will one day find themselves unable to afford to retire. Given that currently only 6% of South Africans are able to retire comfortably, this is a real concern.”
Furthermore, the implications for the state may also be severe if more people are expected to rely on social grants and the national healthcare system in their old age.
A lack of savings from millennial employees will also negatively impact on long-term national growth as a robust savings culture remains essential to sustained economic growth.
Tisani adds that even millennials who do hold down regular corporate jobs, but fail to preserve their retirement savings when they change jobs, could face a precarious future.
“Exacerbating the risk of inadequate retirement funding is the fact that our lifespans are getting longer, which means you will need more money to finance a lengthier retirement. Alternatively, you may need to continue working for longer before retiring.”
Another financial risk for freelancing millennials is the fact that their income tends to be erratic.
“When your income fluctuates and you don’t receive a fixed amount on a fixed date every month, not only is it hard to budget properly, but it’s highly likely that you will encounter frequent cash flow problems,” says Tisani.
“This makes it essential to build up, as soon as possible, some sort of emergency or buffer fund.”
What’s clear, she says, is that taking control of your financial destiny is particularly important for millennials.
“There’s no doubt that the gig economy offers exciting opportunities and greater freedom and lifestyle choice, but with this freedom comes risk that young people should take into account,” she says.
She recommends that those in the gig economy should not discount the value of financial advice and how a financial adviser can help them build a foundation for their future.
“No matter what space you play in – whether permanent employment or freelancing – a financial adviser can help you make informed decisions when it comes to your money.”
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