The Good, Bad, and Ugly of Money Management in Modern America

Source: Thinkstock

Source: Thinkstock

Millennials, those born between 1980 or so and the mid-1990s, comprise the largest and most diverse generation in U.S. history. According to a report from TIAA CREF, by 2025, millennials are expected to account for more than 75% of the workforce in the U.S.; they are a force which will undoubtedly shape the nation in countless ways in the years to come.

Historically, though, much of the conversation around millennials has centered on their detriments. They won’t move out of mom and dad’s basement, they’re too entitled, they’re tech literate to the point of being technology dependent. These are all criticisms that have been leveled at Gen Y in the past few years. And you know what? Complaints are to be expected; every older generation has, historically, been somewhat at odds with their younger counterparts. Just think about what a nuisance the baby boomers were made out to be, back in the day.

But despite all of the anxious squabbling about whether or not the kids are all right, it turns out there is actually one sphere in which Gen Y is pretty savvy, and that’s financially. If that surprises you, then think about this: Millennials largely came of age during one of the greatest recessions in history; many of them graduated college in debt, and were faced with unemployment rates higher than they had been in decades. As a result, while they grew up in vastly different eras, Millennials are thrifty in some of the same ways that those of the Greatest Generation are and were.

So why should we all care what happens to Millennials as they become leaders in the workforce and begin navigating their way through the major financial decisions of their lives? Well, Gen Y is the largest generation in U.S. history, bigger still, than even the baby boomers, and as Northwestern Mutual puts it, “Millennials’ personal finances are more relevant for the state of the economy than those of any preceding generation.”

Without any further to-do, here is the good, the bad, and the ugly (or scary, depending on your point of view), when it comes to Gen Y’s attitude toward personal finance.

The good:

There are good things and bad things about coming of age during a recession. One of the more positive side effects of the recession on the Millennial generation is that they tend to have an intuitive understanding of the importance of saving. According to Time magazine, “one in four are habitual savers.” Further, a study by Northwestern Mutual found that 80% of Millennials have a monthly budget, and more than two-thirds have an emergency fund.”

Interestingly, even though they are a young generation, Northwestern found that saving for retirement is among Gen Y’s top priorities. This may be due, in part, to Millennials lack of faith in “the system.” According to a Principal Financial Group study 58% of Millennials don’t believe that Social Security will still exist by the time they are ready to retire. As a consequence, Millennials generally feel they are individually responsible for their own retirement; if they don’t do it, no one will. To that end, a surprising two-thirds of Millennials started saving for retirement before the age of 25, according to Principal.

Further, Millennials value retirement benefits very highly when choosing employers, and are interested in learning more about how they can improve their prospects for retirement. A Transamerica Center survey found that “two-thirds of Millennials say they would be likely to switch companies for a similar job if it comes with better retirement benefits, and 71 percent of those who are “offered a 401(k) or similar plan by their employers participate in the plan.”

Baby boomers, on the other hand, aren’t quite so prepared, according to the Northwestern Mutual study. The report found that 70% of younger baby boomers (ages 50-59) admit they don’t utilize a financial planner, and 12% say they don’t consider themselves planners at all, the highest percentage of any generation surveyed.

Meanwhile, the Northwestern study found that Millennials “and more senior adults (60+) have something very important in common.” The study found that both demographics “represent the most disciplined financial planners in the U.S. Meanwhile, adults who fall between ages 40-59 are the most financially unprepared and most likely to identify themselves as informal or non-planners.”

Unlike their elders, Millennials generally “recognize the importance of saving, and tend to be more proactive about planning than their elders,” concludes Northwestern Mutual. “One of the financial virtues of this group appears to be a slow and steady approach to building a nest egg. Roughly a third favor a long-term tried-and-true strategy.”

The bad:

While Millennials seem to be super-savers compared to their parents or grandparents’ generation, studies have also found that they are incredibly cautious, sometimes to their own detriment. They despise taking financial risks, for instance, and are incredibly fiscally conservative for a generation so young.

According to Northwestern Mutual, just 14% of Millennials are pursuing a high-growth investment strategy, even though they have plenty of time to ride out any bumps the market may throw at them before they retire. Time magazine notes, when it comes to investments, Gen Y just might be playing it too safe. “If their money is socked away in savings bonds and other ultra-conservative investments it won’t grow fast enough for them to retire even over a long period of time.”

Millennials are the first generation to grow up with modern technology, such as computers, cell phones, and social media. As a result, this generation looks at the world in a very different way from its predecessors and are effectively prioritizing different goals than their parents and grandparents. For instance, Millennials aren’t itching to achieve milestones of adulthood like home or car ownership in the way that previous generations have, and surveys indicate that they aren’t chomping at the bit to have kids, either. Instead, Millennials seem to be prioritizing very different kinds of investments, thinks like education and technology. The Atlantic, which ran a profile of the Millennials called “the Cheapest Generation,” notes that “the largest generation in American history might never spend as lavishly as its parents did — nor on the same things.”

“Just as car sales have plummeted among their age cohort, the share of young people getting their first mortgage between 2009 and 2011 is half of what is was 10 years ago,” the Atlantic reports, confirming other studies reports that young people simply aren’t buying houses.

Further, the Northwestern Mutual study found that Gen Y has “an average level of wealth that was 7 percent below the average level of wealth of those in their 20s and 30s in 1983.” Just as many have been speculating for years, Millennials are still predicted to become the first generation to be worse off than their parents.

The ugly:

Perhaps the largest obstacles facing Gen Y are those they actually don’t have much control over; Time magazine notes that lack of job opportunities and student debt are some of the biggest roadblocks preventing Millennials from achieving their goal of financial security, and yes, it is in fact a goal of many young people. Seventy-seven percent of college-educated Millennials surveyed in the Northwestern Mutual study said that financial security, more than other goals such as freedom, home ownership, or career success, define the ever-elusive “American dream.”

Financial security, however, may be hard for some Gen Yers to achieve. They are, after all the most indebted generation ever; according to Northwestern Mutual, “[81 percent of college-educated Millennials have at least one form of outstanding long-term debt and 44 percent have more than one. The typical college-educated Millennial is thus simultaneously managing personal assets and dealing with long-term debt payments.” For many young people, student loan debt is something which shadows them well into their formative adult years and beyond.

It’s this mountain of student debt, along with underemployment and stagnating wages, studies suggest, which helps explain why more young people have yet to pursue home-ownership, even as 60% of Millennials report they’d like to eventually own their own home. “Low pay, low savings, tighter lending standards from banks…Student debt — some $1 trillion in total — stalks many potential buyers as they seek a mortgage,” the Atlantic notes.

“Many millennials began entering the workforce coincident with the Great Recession, which economists indicate lasted from 2007 to 2009, and whose effects are still being felt today. The economic downturn made it difficult for Millennials to find work. In 2013 the unemployment rate was higher among workers age 25 to 34 (7.4 percent) than it was among those 35 and older (less than 6 percent).”

It seems, then, that Millennials aren’t entirely apathetic to traditional long-term financial goals such as home ownership, car ownership, and having children. Instead, for many the reality is not that they don’t want these things, but that they simply can’t afford them.

The Atlantic notes that delayed home-ownership among Millennials is likely to have an affect on the housing market as well as the economy; less home-owners and less car-owners mean those industries are likely to shrivel, and it’s likely that it will take a while before the economy adjusts to the kind of lifestyle many Millennials are seeking in urban areas.

Whatever the changes that are to come, the studies and stories that are constantly circling about this young generation all seem to reach a similar conclusion: Millennials have their own, unique idea of “the American dream” and, while it differs in many ways from those of previous generations it seems that, in terms of personal finance, Gen Y is fine with doing things the old-fashioned way.

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