The generations that came ahead of the millennial generation, that is people born between 1980 and the turn of the century, generally have few good things to say about millennials. The age group has been sharply criticized for being lazy, overly altruistic, and financially illiterate.
Of course, these stereotypes didn’t come from no where. However, the generation has been forced to adopt many conservative approaches to money – perhaps more than most of them realize.
They may have their faults, but, when it comes to issues of personal finance, millennials can teach the rest of us some important lessons for managing personal finances. Below is a critical look at how the generation is saving money, and how it may actually help the group in the long-run.
Understanding the Lifestyle
To understand how millennials save money, we need to understand their lifestyle better. Following are some important things about millennials that help in understanding their attitudes towards saving.
More millennials have gone to college than any other generation before them. Nearly a quarter of 18 – to 34-year-olds hold a bachelor’s degree. However, this has proven costly to the generation, and more than 70% of graduates have loans averaging around $27,000.
Millennials choose city life over rural or suburban living more than anyone else. Living in a city is more expensive than living elsewhere, resulting in much less disposable income.
Earnings are down for millennials even though their education is the highest ever. Today, 18 to 34-year-olds make on average $4,000 per year less than this age group made in the year 2000. Lower wages, higher wages and city living create a situation where the average Millennial’s net worth is negative $3,472. Almost the amount of income lost compared to the same age group in 2000.
Millennials are postponing home and car ownership as well as marriage. In 2015, 60% of them rented their housing and 26% lived with their parents.
Traditional financial advice says everyone needs an emergency fund that covers anywhere from 3 months to 8 months of expenses. Millennials are hard pressed to do so given the obstacles they face in their financial lives. Below are some ways that Millennials have found to cut expenses and begin saving.
Millennials Spend Carefully
Often the Millennial generation is criticized for excessive spending, with critics moaning over the cost of lattes, espressos, and even smoothies. However, several financial analysts have challenged this notion.
Julie Pukas, head of U.S. bankcard and merchant solutions at TD Bank, said millennials are focused on being responsible with their money, spending within their means, shunning expensive material items and larger purchases.
Sure, they enjoy going out for dinner and meeting friends for drinks. But, they spend less on these activities than Baby Boomers or members of Generation X. On average, millennials spend around $26,000 per year. When compared to Gen X they are spending around 27% less than Gen X people do and 23% less than Baby Boomers.
Almost half of millennials believe that Social Security will be bankrupt when they retire. As a result, they look closely at retirement benefits offered by prospective employers. Robert R. Johnson, president, and CEO of The American College of Financial Services said:
“Millennials understand the importance of retirement planning and getting an early start on building retirement security.”
Living Within Their Means
When millennials spend, they use cash, debit cards, or checks. While the average American use tools that are cash-based for spending, on an annual basis they only spend $2,400. Millennials spend more than twice that amount using the same tools spends $5,200. Millennials use credit cards 22% less than average Americans do.
A survey by Pew Research Center disclosed that Millennials have more student loan balances, higher poverty levels, and more unemployment than other generations in the modern era. Even so, 80% of Millennials tell surveyors they have enough income to lead the life they want at present. The Pew Research Center believes these results suggest that Millennials may define fulfillment and success differently than preceding generations.
In addition to keeping credit cards at arms-length, the generation is also highly skeptical of the stock market.
“Millennials have done their homework and understand the reality that the stock market is impossible to master,” CR Myers & Associates partner Ryan Brown explained.
Accordingly, they follow the advice of seasoned investors such as Warren Buffet, John Bogle and others offering similar simple advice that is to invest and forget about it.
“They check out everything before buying and are especially cost conscious, even to the extent of calculating the amount of fees to the penny,” Brown added.
Millennials prove that necessity can change behaviors. The generation’s ability to deal with more debt and less income makes them more responsible financially than preceding generations.
Of course, this is not to suggest that the millennial approach to finance is perfect. On the contrary, the generation needs to make desperate changes in how it approaches politics if they hope to see higher incomes for themselves and others in the future. However, they’re learning the personal lessons faster than most give them credit for.
Regards,
Ethan Warrick
Editor
Wealth Authority
