Millenials & Money


There seems to be a lot of dialogue taking place about the millennial population.  Much can be said of this generation which is coming of age in a highly technological environment where there is more access to information and resources than ever before.  Lots of the talk about Millenials stems around their workplace habits and expectations.  Some of the chatter about Millenials always points toward their work ethic, how they are expecting to be rapidly promoted, and how they crave a better work/life balance.

But what I am choosing to focus on today is not the workplace behaviors of Millenials, but their money habits.  While researching various topics related to investing and personal finance I seem to come across quite a bit regarding Millenials.  From the majority of the articles written there is this perception from studies, surveys, and other forms of research that Millenials are bad with money.  

Several factors come into play when discussing the money management habits of todays Millenials.  Notable factors affecting finances of Millenials are large loan balances, credit card debt, rising rents, and and an uncertain job market.  These factors do not affect all individuals in the same way, but they can impact the way one chooses to manage their finances.  

Some Millenials opt to continue to live with family or take on roommates to lower the burden of certain living expenses.  One study showed that nearly 70% of students who graduated from a four year college did so with debt, which led to 23% of parents with a child who attended college paying off the kids student loans.  With so many competing demands tugging at their pocket books it is easy to see how some young people are struggling financially.  According to one survey the average young person was shown to be responsible in just one of the following categories: on time debt payments, budgeting within their means, and saving for retirement.

One major reason why individuals struggle with their money decisions is because they lack knowledge of proper behaviors.  Think about all the places where the average person is learning sound money behaviors and it is bound to be a small list.  Good budgeting, saving, and investing habits are rarely discussed in schools, homes, and places of work.  This leaves individuals to fend for themselves and sort through the plethora of bad financial choices one can make.  A recent San Diego State University study showed that young Americans had trouble answering three basic questions designed to test financial knowledge.  The questions are included below for reference.

(1) Do you think that the following statement is true or false? Buying a single company stock usually provides a safer return than a stock mutual fund.

(2) Suppose you had $100 in a savings account and the interest rate was 2% per year. After 5 years, how much do you think you would have in the account if you left the money to grow: More than $102, exactly $102, or less than $102?

(3) Imagine that the interest rate on your savings account was 1% per year and inflation was 2% per year. After 1 year, would you be able to buy more than, exactly the same as, or less than today with the money in this account?

To contrast the recent findings of some of the statistics levied upon the Milllenial generation I looked back at a few articles from previous years.  One article touted the Millenial population as being super savers, saying 70% of Millenials had started saving for retirement at a young age of 22.  This number is a great improvement on the ages of the preceding generations when it comes to retirement savings; the average Boomer began at age 35 vs the Gen Xer who began at 27.  Beginning to save early for retirement is a good thing, for several reasons.  The compounding of money, availability of a company match, and a rising income will all help propel an early retirement saver to meet their goals.

Even though getting an early start is important, another factor will also play a huge part in whether or not an investor is successful, that  factor is what you invest in.  According to one statistic I came access only 26% of adults under 30 mentioned owing stock.  That low stock ownership percentage is troubling, especially because the younger you are the more stock exposure you should have.  A long time horizon and being able to recover 
from shifts in value should make stock ownership very attractive to young investors.  Another factor that could contribute to the low levels of stock ownership could simply be a lack of funds to invest.



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