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Millennials Financial Woes
August 21, 2017
Millennials are faced with more debt and less income than Generation Xers or Baby Boomers on average. Although baby boomers fared better than Generation Xers losing 30% of their retirement compared to Generation Xers losing an average of 45% of their accumulated wealth, the Millennial generation will face the most uncertain economic future of any generation in America since the Great Depression.
Millennials have been plagued with three decades of stagnant wages that followed the Great Recession as they entered the workforce. Millennials often struggle to live within their means, which could be due to earning lower income early on in their careers. The biggest fear of this generation is always living paycheck to paycheck and never getting out of debt.
Millennials are often labeled as materialistic, spoiled and saddled with a sense of entitlement. However, most Millennials feel that they will never be able to achieve material goals such as finding their dream job, buying a house or retiring until much later in their lives than their parents did. They are struggling to pay off student loan debt due to unemployment and low-paying jobs. Over 15% of Millennials in their early twenties were out of work and many are still struggling to get their feet since the recession. This struggle will hurt them long after they do get work and put them behind schedule financially.
Part of the problem is that most millennials seeking a job, do not make pay and compensation their primary focus. What determines where Millennials work is their needs and life goals. Over 71% of Millennials are either not engaged or actively disengaged at work, making them the least engaged generation in America. Engagement in the workplace is essential to retaining employees. Millennials value autonomy, respect and being treated fairly, and they expect employers to be able to provide these conditions in their workplace. Their access to digital information has also made them much more aware of what their peers and superiors are earning as well as what they themselves are worth, and what their rights and privileges are in the workplace. They want work that enriches not only themselves but the world around them. Millennials are more willing to switch jobs if they believe the position is an improvement or the company presents a substantial attraction opportunity within the organization. Millennials place a greater emphasis on opportunities to learn and grow than opportunities for advancement.
A major struggle for millennials is paying for their college education. Over 57% of millennials report regretting how much they borrowed and one-third report that they would not have attended college if they realized the total cost of their education. With most millennials owing $35,000 or more for their college education and wages that do not reflect the skyrocketing cost of college, no wonder it is difficult for millennials to pay off their debt. On the other hand, even though 8 out of 10 millennials work within a budget, 59% of millennials do not know how long it will take them to be debt free when asked when they would pay off their student loans. Most millennials are also unwilling to prioritize debt repayment over quality of life. When asked what they’d consider giving up in order to pay down their debt, less than half were willing to do without concert tickets, lattes, food delivery, alcohol purchases or travel. This is not surprising since the millennial generation values experiences over material things.
Millennials are also concerned that they will have a difficult time purchasing a home. While other generations may have already achieved the ability of buying a home, millennials the most afraid of not being able to afford a home and believe saving for a home will be their biggest financial challenge. Part of the problem is that their work situations change more often than other generation. They are delaying buying a home due to shifting jobs or working contract jobs. This type of job instability delays buying a home.
Although millennials have time on their side when it comes to long-term investing, they are starting off behind the curve. They're putting off saving for retirement because of other financial obligations. In addition to pushing off saving for retirement, nearly half of millennials said they held off buying a house, 29% delayed getting married and 38% said they postponed having children.
Why has it been so difficult for Millennials?
Over three quarters of Millennials want to have the same clothes, cars and technological gadgets as their friends, and that around half of them have to use a credit card to pay for basic daily necessities such as food and utilities. Most millennials feel pressure to conform to the financial habits of their peers due to social media.
Over 25% of millennials have been hit with late payments or bill collectors, and well over half are still receiving some form of financial aid from their parents. In addition, one study showed that 7 out of 10 young people define financial stability as being able to pay all of their bills each month!
Millennials are actually spending less of their income, only 81% compared to older generations spending 91% of their income.
Then WHY is it so difficult for millennials?
The effects of the Great Recession hit millennials with the reduction of credit card debt and home and car purchases, as lenders have tightened up their requirements for loans and extensions of credit. This has also served to reduce the amount of consumer debt that millennials carry, and a surprising number of millennials actually live within their means. However, their overall level of financial literacy is relatively low.
Although millennials tend to live within their means and it is more difficult for them to obtain credit, they have been plagued with housing prices that are a third more than they were in the 1980s and college tuition that increased by 260%. Compensation has only risen 9.2% since 1979 which means that the salaries are not keeping up with the cost of living.
Millennials struggle with the cost of housing, tuition, health care and social security. To make matters worse, they are under pressure to pay down their debt and save when there is social media pressure to eat out every day and travel. For example, the average cost of a cup of coffee was 45 cents in 1985 which would be the equivalent of $1.32 in today’s economy. Today that same cup of coffee is approximately $2.70. However, most Americans are purchasing lattes, espressos, cappuccinos, and macchiatos for $3.94 per cup. Let alone, they are now purchasing avocado toast for up to $19! (It only costs about $1.65 to make it at home.) Millennials that waste money on eating avocado toast and specialty coffee purchases daily and are spending upwards of $8,372 per year on these types of items!
Millennials face a set of challenges that will only be truly understood in hindsight. The skyrocketing college tuition and housing prices, the social media demands of eating out and vacationing, and the salaries that are not keeping up with the rising costs makes it difficult for millennials to get out of debt, pay off their student loans, save for a home and retirement. The millennials ability to succeed financially will depend upon many factors, including economic and political conditions.