Millennial Money Matters

There are about 80 million millennials in the United States. While there is no such thing as precise dates assigned to specific generations of Americans, generally the people born in the late 80’s and 90’s are the millennials – the largest generation in American history. They are called millennials because they were born near the year 2000, which was celebrated as the beginning of the third millennium.

Technology has always been a part of their everyday lives. And compared to past generations, they are the most ethnically and racially diverse generation in U.S. history.

However, they are also facing financial challenges that prior generations did not experience. They have crushing student loan debt, a challenging job market and a healthy fear of credit card debt and the stock market. The income and net worth difference between the rich and the middle class is at its highest level in the past 90 years.

The Great Recession resulted in cutbacks in the job market and although there was an improvement in 2016 and 2017, millennials face a 20-year trend of a decreasing labor market making the job market hard to crack.

That may be the reason their view of employment is much different from the way their parents and grandparents saw theirs. In general, millennials don’t want to work a large corporation and be tied to a 30-year career with the same business. They would rather work for a start-up, create their own independent business or non-profit or find part-time work.  This change from previous generations allows them to have a great work/life balance but puts them at the bottom of the pay scale.

That low pay means many millennials are stressed about their financial future. Some Millennials have decided to postpone working in favor of getting a higher education or additional degrees. And the burden of student loan debt can cause a personal financial crisis.

Millennials are more likely than older generations to have student loans to pay. About 41 percent of them held such debt, according to a 2015 Pew report. That compares with, at their peaks, 26% for Generation X; 13% for Baby Boomers; and 3% for the Silent Generation. And the burden is heavier, too: From 1990 to 2015, student debt for the typical college bachelor’s degree increased about 164%, according to Education Department data.

Low wages and high student loan debt mean less money available for saving, whether that saving is earmarked for major purchases or for retirement.

In addition to the high cost of student debt, millennials are also faced with having to save more for retirement than previous generations.  They cannot count on a pension plan from their employer nor can they count on social security to fund retirement.

The National Institute for Retirement Security reports that the 45% of millennials do not meet the eligibility requirements to participate in an employer-sponsored retirement plan. They either do not work enough hours to meet the minimum requirement or do not have the years of service required to participate in the plan.

Add that to the low wages and student debt and it’s a recipe for retirement disaster. To make matters worse, each year that long-term savings are delayed means less money will be available in retirement. In the Compass Catholic Ministries Bible study, Navigating Your Finances God’s Way, we have a chart showing the impact of compound interest over time.

The chart shows two people: Danielle who started saving $1,000 a year at age 21, saved for eight years, and then completely stopped; and Matt who saved $1,000 a year for 37 years starting at age 29. Both earned 10% interest on their savings. Danielle saved a total of $8,000 and Matt saved $37,000. With compound interest, at age 65, Danielle had accumulated $427,736, and Matt had accumulated $363,043. Incredibly, Danielle’s savings was worth more at age 65 because of the early start and the magic of compound interest.

Saving early in life and making saving a habit is defined in Proverbs 21:20, which says “Precious treasure remains in the house of the wise, but the fool consumes it.”

While the millennial financial future may all look like gloom and doom, there are several bright spots.

The most encouraging one is their aversion for credit card debt. According to a Bankrate.com survey, only 1 out of 3 millennials carries a credit card. They will either use cash, a prepaid card or a debit card, thus avoiding the interest payments on credit card balances.

Given their tech-savvy nature, millennials are leveraging social networking platforms, websites, and mobile apps to do everything from following stock-picking tips to finding financial planners.  This knowledge will help them make wise investment choices and become comfortable investing in the stock market.

The stock market, over the long haul, has produced return rates hovering in the 11% range. While the market will increase in some years and decrease in others, staying invested in the stock market will earn more interest over a long period of time than putting investments into what’s considered a safe investment such as bonds or a savings account.

Each generation faces its own challenges and the millennial generation is no different.  Hopefully they have learned a lesson from the Great Recession and the debt pit into which their parents fell so willingly.

For more on this topic, listen to the Compass Catholic podcast on Podbean.