Millennials’ love of flexibility is accelerating a worldwide shift from secure nine-to-five jobs to freelancing and short-term contracts. A study by Intuit predicts that by 2020 40% of workers in the United States 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 called.
Although this way of working may unlock new opportunities for young South Africans and help to address unemployment, it’s important to be aware of the risks and address them.
Foremost among these risks is that freelancers are not obliged to contribute to a retirement fund in the way that permanent employees are. In the formal employment sector, retirement savings are often a condition of employment.
With nothing compelling them to make monthly payments towards their long-term financial well-being, there is a risk that Millennials will find that they cannot afford to retire. This is a real concern, given that currently only 6% of South Africans are able to retire comfortably.
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 that our lifespans are increasing, which means we will need more money to finance a longer retirement. Alternatively, we will need to work longer and delay retiring.
Another concern is the low levels of retirement planning among Gen Y (people born between 1980 and 1995), the generation that follows the Millennials. The 2017 Old Mutual Savings & Investment Monitor found that 45% of Gen Y-ers have neither a pension fund nor retirement annuity.
Another financial risk facing freelancing Millennials is that their income tends to be erratic. When your income fluctuates and you don’t receive a certain amount on a fixed date every month, not only is it hard to budget properly, but it’s also highly likely that you will encounter frequent cash-flow problems. This makes it essential to build up, as soon as possible, an emergency or buffer fund.
What’s clear is that Millennials need to take control of their financial destiny.
There’s no doubt that the gig economy offers exciting opportunities and greater freedom and lifestyle choice, but with this freedom comes risk. Be aware of the risks and think long term.
Ask a financial adviser to draw up a financial plan. The better informed you are, the better decisions you’ll make. Keep up to date with business news, find a reputable financial website, and get clued up about managing your money.