The millennial generation is notorious for its financial difficulties. As with any stereotype, many buck the trend, but the average millennial does have more money problems than individuals from other demographics.
Years ago, such financial ineptitude might’ve been the subject of ridicule from their elders. But now that millennials are the largest generation in society and the prime of their spending power, their challenges affect us. It’s no laughing matter.
And this pattern of financial hardship could easily repeat itself with subsequent cohorts unless we learn and impart the right lessons from this generation’s troubles.
A 2016 EIG survey indicated that for millennials, there’s a strong link between financial prospects and education. The twist is that for many, it’s an inverse relationship.
Between 2004 and 2014, student loan activity had increased by 89% in terms of the number of borrowers and 77% in terms of average balance. More than half of millennials surveyed had taken student debt or were planning to.
Yet while the majority of these students believed in the importance of education, only 49% believed a degree would yield sufficient ROI to be worthwhile. In fact, 43% believe that subsequently struggling to pay off student debt actually hampers their career potential.
It’s a catch-22 because of degree inflation: many jobs now require a college education, even if that’s not necessary for the work involved. Employers use it as an easy way of filtering candidates.
Thus, millennials end up being underemployed, earning low wages that don’t suffice to pay off the cost of living and settle the balance on their loans. And those loans were taken out, in the first place, to theoretically ensure a successful career and better standard of living.
Pursuing a traditional education has been underwhelmed when it comes to career and financial results. But at the same time, millennials have neglected their education in the matter of financial literacy itself.
They often lack familiarity with financial products, such as different types of investment options. Their money planning, if it exists, tends to focus on the here and now, budgeting for daily living expenses, or a month in advance at best. More than one-third don’t have the necessary emergency funds to cover unforeseen expenses of $2000 in a month.
Long-term financial products are even more neglected. Agents selling insurance need user-friendly websites, creative marketing tactics, and social media to create the personalized experiences necessary to engage millennial audiences. Lawyers have similar difficulty convincing them of the need for estate planning.
Without financial literacy, anyone might be guilty of failing to see the value of these different options for allocating money. For millennials, the problem is that two trends have come to a head with their generation. They weren’t sufficiently educated in money management, and their financial struggles give them less discretionary income with which to explore such options.
Dealing with threats
In truth, many of the financial failings of millennials are actually the result of external threats: factors beyond their control.
The failure of education to keep pace with rapidly changing workforce demands for skills is institutional. Schools and parents alike could have done more to teach this generation about personal finance, even as the world of financial products grows even more complicated.
It’s not their fault that the first wave of millennial employees hit the job market around the time of the Great Recession. Or that the pandemic has created another downturn barely a decade later.
These phenomena aren’t a coincidence but the result of historical cycles. The Strauss-Howe generational theory posits that we’re in the middle of a ‘Fourth Turning’ or crisis, similar to the era between the Depression and World War II.
Our global, highly networked society is so complex that it’s pushing up against various limits to growth, and younger people are more vulnerable to being squeezed out.
A lesson in time
Time is the common theme in all these lessons.
When people incur debt, they’re deferring payments into the future in exchange for some immediate purchase. Those payments will grow due to compound interest. If the purchase is a college education, does the value of your time invested really figure to be worth not only the upfront cost but the balance down the road?
Do you plan to retire at a certain age? How much can you expect to have earned by then? What lifestyle adjustments need to be made to meet those goals? Becoming financially literate means accounting for those things, not just your monthly budget.
We can’t do much about the times we’re born in. But we can develop greater awareness of this crisis period, bracing ourselves for the coming turbulence. And teach the younger generations these same time-based lessons to avoid finding themselves in a similar precarious financial situation years from now.