By Lee Travers
The millennial generation is the biggest in history, eclipsing that of the baby boomers. Goldman Sachs research estimates that there are approximately 92 million millennials in the USA alone, and a further 11.7 million in the UK.
This generation are coming of age during a time of technological change, globalisation and economic disruption, meaning that their behaviours and experiences are different to those of their parents.
First of all, they are far poorer than their parents were. They have less to spend because, relative to the cost of goods and services, their money is not worth as much. They are also a generation of debt, with US millennials now owing more than $1.3trn in debt.
But, isn’t this the generation that’s meant to be shaping the future of finance and technology? Aren’t their spending behaviours and experiences supposed to be setting the precedent for future generations? Why then, are we penalising them for the way they live, and hindering their growth, instead of helping to shape it?
I believe it’s ever more important to help them to make better decisions about their future – because, after all, our future is in their hands.
For example, if we treated them in the same way and gave them the same opportunities as the baby boomer generation, could we maybe transform their lives – a win-win for all?
Money, money, money
Money is the biggest worry for this generation. A quarter of millennials worry about their finances all of the time, according to the second biennial Fidelity Investments Millennial Money Study.
Furthermore, almost half (47%) have accepted some form of financial assistance from their parents since branching out on their own; such as help with a phone bill, utilities or groceries (but I'll get to that another time!)
The average cost of student debt has almost doubled in the last 14 years. The average US student debt currently stands at $20,926; compared to 2003, when it was $10,649, according to Goldman Sachs
This isn’t surprising, seeing as the average cost of student debt has almost doubled in the last 14 years. The average US student debt currently stands at $20,926; compared to 2003, when it was $10,649, according to Goldman Sachs.
This means that a student’s disposable income has reduced. Additionally, income for 15-24 year olds fell by five per cent between 2000 and 2012. Between 2007 and 2014, the average wage of the lowest earners in the US actually went down by 0.4 per cent, to $8.62 per hour, compared to pre-recession figures - according to the Economic Policy Institute.
How can we expect this generation to save, invest, buy their first house; or even get married and have children? The simple answer is - they can't!
Saving – a thing of the past?
While saving for a comfortable retirement was a priority for the baby boomers, research by GOBankingRates shows that 72% of millennials aged between 18 and 24 have less than $1,000 in their savings accounts and 31% have none whatsoever.
Older millennials — defined as those between 25 and 34 — aren't doing much better, with 67% having less than $1,000 in their savings accounts and 33% with nothing at all.
It’s a similar story when it comes to investment, with just eight per cent investing in stocks and shares, according to Fidelity’s research. This isn’t that surprising though, because in order to save or invest, you need to have available and disposable funds to do it, right?
With student debt growing and income growth slowing down, more and more millennials are starting life on the back foot, spending more than they earn. This is alarming, seeing as the average amount that a person needs to save for retirement is between five and eight times their annual salary.
Furthermore, the average salary of a millennial today is almost 10% lower than the that of the baby boomer generation at the same age (in real terms).
Compared to their predecessors, the baby boomers and the generation that follows them - Gen X - millennials are spending their time working to pay rent, pay off student loans and purchase a home.
The top three spends for millennials appear to be living expenses (38%), reducing credit card debt (33%) and paying off student loans (30%).
This leaves them with no disposable income to save. Therefore, according to Fidelity’s study, one of the main challenges that millennials face is accumulating more savings for retirement, with 44% stating that they’d like to save money for old age, and 44% adding that they would like to build an ‘emergency fund’.
The top three spends for millennials appear to be living expenses (38%), reducing credit card debt (33%) and paying off student loans (30 per cent).
Whereas the baby boomer generation were lucky enough to own their homes in their early 20s, the millennial generation are struggling to gain a foothold on the property ladder. With property prices soaring required deposits are higher. This has resulted in a staggering 75% of 35-44 year olds still renting!
This figure is likely to grow further, according to PricewaterhouseCoopers, (PwC), which says the number of renters is set to almost double by 2025, locking in a growing generation rent. In comparison, PwC adds that the number of people who are mortgage-free will also rise by 2025, as an increasing proportion of over-60s pay off their mortgages.
Commitment-phobes, or just can’t afford it?
The median age for millennials to get married and have children has also gone up to 30, compared with the 1970s, when it was 23. Some aren’t even getting married - with 23% stating that it’s not their priority, as it’s too expensive, according to the Goldman Sachs study.
This isn’t surprising, as the national average cost of a wedding in the US, in 2016, shot up to $35,329, according to a survey by The Knot. It's £24,000 in the UK, according to Brides magazine.
Renting, in all respects…
While renting is standard for millennials, there’s a growing trend for renting services too - as the need for convenience, lack of responsibility and saving money becomes more important.
This has seen a rise in the sharing economy, with services such as Zip Car, a car renting service.
Studies show that millennials have shifted away from consumerism. They are less likely to own a car, or buy a home, yet more likely to do volunteer work than previous generations.
This has seen a rise in the sharing economy, with services such as Zipcar, a car renting service. Zipcar exceeded one million paying members operating in more than 500 cities and towns in eight countries across the globe, in September 2016, as millennials look to save money and search for better value.
However, is this because they don’t want to own cars, buy homes, or have jobs — or because the economy is such that these goals seem unattainable? Do they appear beyond reach when maybe they don’t have to be?
Knowledge is king?
Around 54% of millennials said that they were not as knowledgeable about finances as their parents were at their age.
Around 54 per cent of millennials said that they were not as knowledgeable about finances as their parents were at their age.
A study, funded by a NEFE grant to George Washington University, which looked at the financial capability of millennials to determine their financial behaviour, found that whilst millennials have high levels of financial responsibility; alarmingly, they showed low levels of financial literacy.
It’s clear that a gap exists between the financial responsibilities assigned to young adults and the knowledge and capacity needed to manage those responsibilities effectively.
However, whilst financial literacy is key, I also believe that we need to stop being so hard on millennials. Instead of penalising them for their mistakes, we need to support them and show them the right path. There needs to be action taken by banks and universities to support this generation by providing genuine solutions, instead of just telling them what to do.
There’s an age-old story where you have two kids climbing a tree. The first one, Mary, climbs right to the top; whereas the second, Patrick, only goes half-way. A strong wind starts to blow, and the kids' parents both call out to them. Mary’s mum screams “hold on”, whereas Patrick’s mum says “don’t fall”. Patrick ends up falling.
The moral of the story is that by giving by giving a positive message, you enforce a positive thought. Whereas, when you start with a negative, they have to process the negative thought before they can take a positive action, so they’re more likely to make a mistake.
This is why, here at iam bank, we don’t judge, we just support.
What would you say if I told you that a millennial’s everyday spending, or that of their parents, could work towards paying down their student debt?
Well…why not check out www.iammoney.co.uk and find out for yourself?