What is the Financial Future of Millennials?
A lot can be said for the Millennial generation, both good and bad. They’ve been called lazy, entitled, and other unflattering things. But they’ve also been credited for some of the greatest leaps forward in modern economic history. After all, the owners of just about every major and disruptive tech company are Millennials. But as for the rest of the generation who aren’t billionaires, when it comes to their financial future, things aren’t looking too positive.
The statistics have been quoted over and over again — More Millennials live with their parents than with roommates. They are delaying marriage and homeownership and parenting for longer than any previous generation.
But the more disturbing statistic is that they show a surprising ineptitude in certain areas of money management. In recent studies only 8 percent of those polled had a high level of financial literacy, while about a quarter, or 24 percent, demonstrated just a basic understanding of how to manage their money. And a generation that lacks secure pensions will certainly need to increase their financial IQ, and quickly.
There is the added burden of carrying large debt from student loans and other sources of long- term debt. And without the financial knowledge to dig themselves out of their money pit of debt, this can become an insurmountable setback for a large portion of the population.
“Young people who have a college degree today are much more likely than previous generations to start their economic life in debt,” says Annamaria Lusardi, academic director of the Global Financial Literacy Excellence Center at the George Washington University. “Universities can do a better job providing students, in particular those with student loans, with financial education.”
Perhaps their saving grace is that Millennials have shown the greatest increase in their savings rate compared with any other generation, according to data from Fidelity. The typical 20- something is now stashing away 7.5 percent of income vs. just 5.8 percent in 2013. Generation X and Boomers are still saving larger percentages of salary but have not stepped up their contributions by nearly as much.
Young people who are making an effort to stockpile some savings have one big advantage--time. With traditional pensions disappearing and Social Security in trouble, saving now is their safest bet, and young people have a head start in this category. Compound growth over an extra 10 years may double your nest egg by age 70, which is why some savvy Millennials are outpacing previous generations in building wealth.
By making a concerted effort to increase financial literacy and by starting to plan and save for their future now, Millennials will have a head start on the most important savings plan they’ll ever embark on and begin to accumulate wealth from a young age.
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