5 Ways Millennials Define Financial Success. Do You Agree?
Facebook knows how you feel about money. The company has been listening in on young people’s online conversations, as well as analyzing audience data and conducting surveys, in order to learn more about how users between the ages of 21 and 34 think about financial matters. What it discovered is likely to surprise some people, though probably not millennials themselves.
“Millennials are misunderstood — famous for their impulse for instant gratification. But when we stop to observe their financial behaviors and listen to them describe their relationship with money in their own words, a new millennial emerges,” according to the report, Millennials and Money: The Unfiltered Journey.
Once you brush aside the stereotype of the lazy and entitled millennial, a picture of a financially responsible generation comes into focus. Millennials want to pay down debt, save for the future, and manage credit responsibly, Facebook’s research found. Debt is by far their biggest financial concern, hardly surprising once you realize two-thirds of millennials are struggling with student loans and credit cards. In addition, a saver’s mindset is firmly entrenched among young people, according to the report, but they’re most likely to save because they think it’s the responsible thing to do rather than with particular purpose in mind.
The younger generation may cautious with its money, Facebook found. But it’s also unsure about where to turn for financial advice. More than half say there’s no one they trust to help them with major financial questions, and two-thirds say their bank doesn’t understand them. When it comes to investing, they’re more likely to trust a robo-adviser than an actual human being.
One reason for the disconnect is millennials are dealing with an out-of-touch financial industry that’s been slow to adapt to their financial needs and identify ways to help them achieve their money goals. People who think all the younger generation cares about is having the latest iPhone in their pocket might be surprised when they see the five ways millennials really define financial success.
5. Buying nice things
Are millennials too materialistic or not materialistic enough? The answer depends on whom you ask. Facebook’s data suggests this generation doesn’t define owning nice stuff as the pinnacle of financial success. Only 4% of millennials in the study equated financial success with having lots of material possessions.
Yet those numbers might not tell the whole story. Researchers at San Diego State University and Knox College have found today’s young people are more materialistic than high schoolers who graduated in the late 1970s. Sixty-two percent of high school seniors surveyed from 2005 to 2007 said having a lot of money was important, compared to 48% from 1976 to 1978. The increase in materialism appeared to be tied to an increase in advertising and consumer spending, as well as unstable family and economic conditions. And a Qualtrics survey of 8,000 millennials found they weren’t shunning consumer goods, but they were interested in buying things that were of better quality or more socially sought after.
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How to make it happen
Millennials want luxury cars and closets full of designer clothes, and they want them without a lot of effort. “Compared to previous generations, recent high school graduates are more likely to want lots of money and nice things, but less likely to say they’re willing to work hard to earn them,” said Jean Twenge, one of the authors of the San Diego State study. She dubbed this disconnect between the desire for nice things and the motivation to work for them the “fantasy gap.”
Young people who equate financial success with being able to purchase material goods are going to need to overcome that fantasy gap. One way is to work hard and earn more money. Doing a better job of budgeting and setting financial priorities can also give millennials the freedom to spend more on the things they really want and less on the things that don’t matter as much. Finally, young people who want the finer things in life can redefine what buying nice things means. For example, do you really want a new BMW, or is it something you’re lusting after because you’ve been told to do so?
4. Being able to retire
Retirement isn’t top of mind for most young people, which isn’t surprising because they’re decades away from exiting the workforce. Still, 13% of millennials in Facebook’s study identified being able to retire as a sign of financial success. Yet only 8% are saving specifically for retirement. The median 401(k) account balance among workers in their 20s who are saving for retirement is $16,502, according to the Employee Benefits Research Institute.
Although many millennials aren’t saving specifically for retirement, they do eventually want to quit working. The average millennial would like to retire at age 59, a survey by Wells Fargo found. But will they be able to make that dream come true?
How to make it happen
Lots of debt combined with other financial goals, such as saving to buy a home, makes setting aside money for retirement a challenge for many millennials. Another difficulty? Not having access to the right savings tools. Only 43% of millennials who didn’t have access to a retirement plan at work reported consistently saving, according to a survey from Young Invincibles, compared to 76% of those whose employers did offer retirement benefits.
Although it might not seem like a lot now, putting away just $10 or $20 a month can help put you on the path to a more secure retirement. For one, those balances compound over time, and the earlier you start, the longer they have to grow. Plus, even if the amount you’re contributing to your 401(k) isn’t large, setting aside something puts you in the saving mindset. Saving if you don’t have a 401(k) is tougher, but contributing to a traditional or Roth IRA, solo 401(k) or SEP-IRA (if you’re self-employed) — or even saving in an non-tax-advantaged account — can put you on the path to financial security.
3. Buying experiences
Young people care more about doing stuff than buying things, at least according to Facebook’s research. Sixteen percent of millennials defined financial success as being able to buy experiences. In fact, this generation’s preference for spending money on concerts, travel, sporting events, and other experiences is hurting some retailers and driving the growth of the “experience economy,” according to Harris Poll. At least some of their spending is driven by FOMO, as younger people are using social media to catch up on other people’s experiences and to share their own adventures.
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How to make it happen
Creating lifelong memories isn’t always cheap, as anyone who’s ever priced out the cost of their dream vacation has discovered. But young people who see buying experiences as a mark of financial success definitely don’t need to wait until they have a six-figure income to start living their dreams. Budget-friendly travel options abound, including cheap road trips and last-minute getaways. Sites, such as Groupon, can help you score cheap tickets and bargain-priced eats at new restaurants. And there are probably plenty of free or cheap adventures to be had in your own hometown.
Getting smart about how you spend and save can also bring memorable experiences within reach. Cut back on extras, such as lunch out at work or your daily coffee run, and you could soon have enough set aside for Coachella tickets. Side gigs are another way to boost your income and afford to pay for those once-in-a-lifetime adventures.
2. Owning a home
Twenty-one percent of millennials said owning their own home was a sign of financial success. Yet making the leap from renter to homeowner is difficult for many young people. Although about 45% of homebuyers in January 2017 were millennials, they’re fighting richer, more experienced people who are interested in the same expensive properties. Competition and bidding wars are the norm, according to report from CNN Money.
Is the younger generation doomed to a life lived in cramped apartments? Not necessarily.
How to make it happen
Jumping into the real estate market is tough, but young buyers can make it work, provided they’re prepared. Staying on top of your credit score, saving for a down payment, and making sure you’re really ready to commit to owning your own home are key. You can also look into getting financial help for buying your first place, such as down payment grants for low- and middle-income buyers.
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1. Being debt-free
Nearly half of millennials define financial success as being debt-free, according to Facebook’s report. Considering that two-thirds of young people have some type of long-term debt, such as student loans, it’s hardly surprising that paying off what they owe is a priority. For some, college debt and other big bills is probably keeping them from focusing on other financial priorities, such as saving from a house. But owing money hurts in other ways. People who struggle to pay off debt are more likely to suffer from depression and anxiety or stress-related illness, according to Yellowbrick.
How to make it happen
When you’re staring down tens of thousands of dollars in student loans, being debt-free might seem like an impossible dream. But it’s not. Certain moves are painless, such as setting up automatic payments plans, so you’re never hit with late fees. (As a bonus, automating payments often earns you a slight discount on your student loan interest rates.)
Other steps are more involved. Andrew Josuweit of Student Loan Hero is paying down more than $100,000 in student debt through a combination of cutting extra expenses (such as cable and gym memberships), moving to a cheaper city, and increasing his income through freelancing and listing his apartment on Airbnb.
And if you’re struggling to make loan payments, do something about it. There are programs designed to help disadvantaged borrowers, and it’s better to take advantage of them before you default on your debt.
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