By Sara Bristoll
You hear a lot about millennials these days in the news. They’re quickly overtaking baby boomers as the largest living generation, and are the focus of most marketers and recruiters. Also known as Gen Y or the demand generation, young adults in this category tend to catch a lot of flak as being “entitled” and all-around bad with money.
But they’ve also grown up since the first studies about them came out. This means they’ve learned some hard lessons and have changed some of their habits. So what is this generation doing right and where do they still have room to grow?
They are more conscious about their spending. According to a self-reporting study by T. Rowe, 75 percent of millennials track their spending carefully, versus 64 percent of baby boomers. Additionally, 12 percent more millennials than baby boomers reported themselves as sticking to a budget. And finally, 74 percent reported themselves as more comfortable with saving than spending.
It’s possible that millennials saw their friends and families get hit hard by the Great Recession and are being overly cautious to avoid ending up in a similar situation.
They are trying to get out of debt. With the ever-rising cost of student loans burdening many millennials as they come out of school, these young adults have financial goals that are different from past generations. According to a Facebook Insights study, 46 percent of millennials define financial success as being debt-free, while only 21 percent see financial success as owning a home.
They are saving more. In their effort to avoid additional debt, many millennials are avoiding loans and credit cards. Instead, they save up for the things they want and their future. A whopping 86 percent of millennials on Facebook are trying to save money. To enforce that information, their self-reported savings rate is 8 percent, and 40 percent have increased their 401(k) contributions in the past year (T.Rowe).
This 8 percent is quite a bit higher than the national average savings rate of 5 percent, but still lower than the 10 to 15 percent of income most experts recommend consumers save.
They are not happy with their current financial plan. Facebook found that most millennials do not have a financial plan (only 37% do); and the ones that have a financial plan aren’t happy with it (33% are happy with their financial plan). Part of this could be because millennials are hesitant about their future after trying to find their first jobs during a recession. It can also be a result of the following information.
They do not know who to listen to. At least 53 percent of them do not know who they can trust when it comes to financial guidance. Coming of age during a recession has had a profound impact on how millennials view traditional financial institutions – with many of them no longer trusting Wall Street or traditional banks.
Not knowing who to trust can make it difficult for them to know where to start and what their financial plan should incorporate. However, it is important for millennials to find someone to trust, so they can define their goals (both short- and long-term) and how they’re going to reach them.
They avoid credit cards. Credit cards, when used correctly, are a great tool for building credit – which translates to the ability to qualify for loans and lower interest rates. But millennials are averse to taking on additional debt (thank you student loans!), and 63 percent of them do not have a credit card. This is almost double the number of adults over 30 who do not have a credit card according to a Bankrate survey.
They are likely to use alternative financing. In past issues of Financially Empowered we’ve talked about alternative financing (e.g., title loans) and the negative effects caused by high fees and high interest rates. Unfortunately, 47 percent of millennials in an Experian survey stated they would most likely use an alternative lender over a traditional lender. The survey does not go on to state why, but it could be because of their lack of trust in traditional lenders or their avoidance of credit cards, causing them to not qualify for traditional loans. Whatever the reason, millennials (and all consumers) should try every possible option for a loan before visiting an alternative lender.
We’re here for you! If you need help with any of the above topics (savings, loans, credit, etc.), give us a call at (602) 683-1000 or stop in to a ServUs Center to meet with a financial coach!