Millennials and Money: The Truth About Their Finances
Millennials are typically defined as those born between the early 1980s and the late 1990s or the start of the 2000s. This age group in particular faces a series of difficulties when it comes to their finances, mainly due to the combined impact of rising house prices, insecure employment and higher debt- which includes student debt. Millennials started entering the workforce at the end of the Great Recession, yet static wages and the increase in the cost of living have cast a grim outlook on the generation’s economic future. Here’s what you need to know about millennials and money, and if you fall into this age group, how you compare with others.
Millennials and work
By 2025, millennials will claim three quarters of all jobs in the economy. But for the average millennial to achieve similar levels of wealth accumulation as those reaching retirement today, they would need to achieve “wealth growth” that’s not exactly feasible in most cases. Around 48% year on year between age 20 and 36 would be needed, then around 7% year on year between 37 and 51. Between 52 and 64 it would need to be around 6%. Millennials work differently to generations gone by- they need to feel like their work is more than just a paycheck; they want their work to be purposeful. Older generations were all about getting the job done and getting paid for it, however the millennial generation is all about getting the right job done and getting paid for it. They’ve grown up alongside technology and this, along with the changing world massively influences the kinds of work they love to do.
More millenials save that the media would have you believe
While some millennials are increasingly proving to be savvy savers, many other young people are not making progress at holding onto their cash. According to The Guardian, Seven out of ten young adults are regularly putting money aside, with almost £174 a month being saved on average. This puts to bed the “myth” that the millennial generation is frittering money on luxuries such as “avocado toast and chai lattes” instead of planning for the future. However, while some are making great savings, there are others that are struggling with debt.
Millenials and debt
Financial debt is a huge concern for many millennials today, and if there is one common trait among this cohort it is the unprecedented level of student and credit-card debt hanging over them. Nearly 80% of early-adult households have some sort of debt, with those eighteen to thirty four years old holding a total of about two trillion in debt. Many will seek bankruptcy advice, or spend much of their adult lives chipping away at the balances. Most of the debt held by millennials is student debt, however due to the fact that it’s estimated that two-thirds of all jobs by 2020 will need postsecondary education or training beyond high school, what choice do they really have? Millennials are faced with the dilemma of whether it’s worth it to study- should they get in debt in the hopes of finding a well paying job to pay it off later? Or stay uneducated, save the debt but be stuck in lower paying positions. It’s kind of a catch 22 situation. Studies have shown that student loan debt is a major factor in declining home ownership among millennials, which is something that will massively influence this generation. A good solution to this issue can be found in student loan refinancing options. One of the most popular ones is the Earnest student loan refinance, amongst many perks it also has variable and fixed interest rates.
Millennials and mortgages
In terms of mortgages, Millennials are ‘coming of age’ with many reaching their late twenties and early thirties and looking to settle down. Owning property still ranks highly as something millennials want, but getting onto the ladder is more difficult than generations gone by. High price houses combined with economic instability, zero hour contracts, Brexit and other factors mean it can be tricky. Combine this with the debt problem and millennials tend to purchase property later than their parents and grandparents. Unlike baby boomers, millennials typically won’t have repaid their mortgage debt by the time they are in their 60s either. Getting mortgages later in life, higher living costs and higher house prices all impact this.
Millennials and retirement
The rule of thumb was once to save ten percent of every paycheck, but there are problems with relying on that approach today. The first is that ten percent probably isn’t enough to cover the cost of living in retirement, especially with the uncertain future of Social Security. The second problem is that there’s a difference between what you should be saving and what you can realistically save. With the financial issues mentioned above, along with the fact that life expectancy will also rise over the next several decades means you’ll need enough savings to sustain yourself longer than today’s retiree. Millennials can use a personal finance calculator to work out what they can save and what they’ll need, and make sure they’re getting paid enough in their current job. Don’t be afraid to negotiate salary or upskill in order to secure a better job if needed.
Millennials tend to get the short end of the stick because they’re completely different from previous generations. However, before we judge them, we need to remember this isn’t a new phenomenon. Nothing would ever change if each generation made the same choices as the generation before them, not to mention we can’t expect people to follow in the footsteps of those who lived in a world that no longer exists. Things change, we have to embrace this and roll with it if we’re going to make progress and move forward.