Gen Xers Aren’t Slackers After All

When it comes to fiscal responsibility, members of Generation X have a bad reputation. Credit movies like Reality Bites, TV shows like Sex and the City and statistical gems like the recent survey from Oppenheimer Funds in which most Gen X women said they’ll accumulate 30 pairs of shoes before they rack up $30,000 for retirement. But some newer research has emerged to show that Gen Xers–the 46 million Americans born between 1965 and 1977–don’t deserve their slacker image.

In the first place, while they don’t save enough for a future that will offer far fewer fixed-benefit pensions, most Gen Xers do save. The 2002 Retirement Confidence Survey from the nonprofit Employee Benefits Research Institute (EBRI) shows that about one-quarter of workers ages 20 to 39 have between $10,000 and $50,000 saved for retirement; 17% have more than that.

The biggest complaint most financial experts have about the Xers is that while they may stockpile 401(k) dollars some years, they don’t hesitate to raid them the next. That’s something 60% of workers–and 78% of those between ages 20 and 29–do when they change jobs. And Xers change jobs often. By the age of 32, the typical U.S. worker has changed jobs nine times.

But when Xers pull money out of their retirement account, many use the cash to start their own business, notes Bruce Tulgan, author of Managing Generation X, which is based on interviews with about 10,000 Xers. Four out of five new enterprises are the work of Xers. Others head back to continue their education, contributing to the rising average age of college students. Xers are the first generation that can’t expect to coast through a career on one set of skills.

Consider Christina Caldwell. The Idaho native, 28, graduated from Pomona College in California, landed a job with the Federal Direct Student Loan Program in Washington, and almost immediately started socking money into the savings plan offered her at work–the government equivalent of a 401(k). Within a couple of years she accumulated more than $15,000. Not bad on a salary that started at $24,000.

Then she decided to get her M.B.A. Out came a few thousand for living expenses. And after she got her degree–amid last year’s recession–it took her eight months to land a job. The rest of her savings quickly vanished. “I really thought that money would be sacred, that I would never touch it,” says Caldwell of her 401(k). “But I hadn’t planned on being unemployed when I graduated.”

Did she make a mistake? By pulling money out of her 401(k) when the market was tanking? Some might call her prescient. “To Gen Xers, what looks like common knowledge–that you leave your 401(k) alone–is absurd,” says author Tulgan. “They think: I don’t know about the future. But I know about now. And the money’s right there. I’m going to bet it on myself.”

Don Blandin, an EBRI executive–who generally believes that workers should save as much as possible in their 401(k)s–says if Caldwell made a mistake, it was probably by putting money into a 401(k) in the first place. What many people forget is that you need to pay down your credit-card debt and build up your emergency cushion first. Otherwise when a need for cash arises, you end up raiding your retirement account and paying penalties and taxes on every dime you withdraw. Blandin advises that if you have an inkling you’ll want to use your savings to go back to school or buy a first house, stashing it in a Roth IRA, where withdrawals for those purposes aren’t penalized, is a much smarter move.

That’s precisely what Christina Caldwell has in mind as she moves into her new job as a management consultant with Governmentum, a management firm in Washington. “All of 2001 reminded me how vulnerable you are. I couldn’t find a job. My older brother got laid off. My mom got divorced. I lost a friend in the World Trade Center. I do want to start saving again. But I’m going to pay my credit-card debt down first and get an emergency cushion. Because you never know when something crazy is going to happen.”

–With reporting by Cybele Weisser

Jean is an editor at large for MONEY magazine. E-mail her at moneytalk@moneymail.com