Entitled, spendthrifts, narcissistic – these are some of the commonly used terms to describe millennials.
Generation Y’ers are often criticised for living in the moment and bearing an unconventional attitude toward money. But often what’s left out of the lead is that the cards are stacked against them. And they’re making the most of the situation.
Millennials are facing several economic challenges, a result of the financial downturn that hit a decade ago. In many ways, the situation of Gen Y, born between 1981-1997, is most similar to that of their grandparents. In fact, in an interesting graph developed by the U.S. Bureau of Labor Statistics, data shows the earnings and spending habits of millennials and individuals born between 1929-1945 was the most alike. They spent identical amounts on housing, food, and entertainment. Gen X, on the other hand, was a lot more lenient with their spending on similar items.
The silent generation faced tough economic battles as they grew up during the great depression era. They learned to be frugal, saved money and invested smartly… Likewise, millennials are coming of age in a period of financial stress. Securing a job after college is not a given like it was a couple of decades ago.
So, how are millennials treating their personal finances with this economic stress? In one word: conservatively. They are as frugal as their grandparents, if not more. They are inclined to save, having seen what happened to their parents during tough financial times.
But millennials face some serious challenges. Let’s take a deeper look at the issues compared to previous generations and the best ways they can manage finances.
How to manage your loans
Education is a big priority for millennials, but it comes with a heavy price tag. Young adults today are buried under massive student loans.
Take the case of students in England. They have the highest debt – £44,500 – compared to their American counterparts – £20,500. Although similar in earning and spending habits, grandparents of millennials didn’t have to deal with grave student loan bills given education didn’t cost as much as a house back then. Also, higher education was not an absolute requirement.
Student debt is causing daily anxiety in the life of 20-somethings, with nearly half of them clueless on how to pay it back. Add to that mortgage and credit card debts. The financial commitments seem endless for this generation.
The fact is student loans are not going away. Millennials can maybe forget about it while in college but need to deal with it right after they graduate. So, what are some of the ways to effectively manage student loans?
- Millennials might not have paid a ton of attention to their student loans while in college. But as soon as they graduate, it’s time to make it a priority. Step one, understand the loans. If buried under multiple loans, prioritise one that has the highest interest rate and start paying it off. It’s crucial to know some of the details like minimum payments each month, deferment options and loan forgiveness.
- Depending on the minimum monthly payment requirements of the loan and monthly income of an individual, students can either stick to the standard repayment option or seek other options. Depending on the country, if one decides to extend loan payments beyond the specified repayment period that could result in higher interest rates. Picking income-driven repayment plans is the best bet as that pulls a set amount every month based on annual income.
How to deal with low wages and high unemployment
As if mounting debts were not enough, millennials also have to deal with low income and higher unemployment compared to previous generations. A British think tank found that millennials are the first ever generation to record lower lifetime earnings compared to their parents. They earn about £8,000 less during their twenties than Gen Xers, the study says.
Millennials are growing in number. In the U.S. alone they constitute the largest generation in the nation’s workforce. But the number of jobs has not matched up. The workplace is becoming extremely competitive requiring workers to be highly skilled. So, how does one stay competitive and make a decent living?
- Given the growing debt account, it’s best to avoid taking on more loans. But employers are placing a huge emphasis on the need to learn additional skills to succeed in the workplace. Traditionally the younger workforce would enroll in graduate school to get a leg up in their career. But millennials today should consider completing certification programmes that can temporarily solve the problem. Rapidly growing technology also offers great options for DIY lessons on practically every topic that individuals can choose from.
- Going beyond the day job to earn some extra pocket money can stabilise savings, as well as help to pay off student loans. There are several ways to make a side income – freelancing based on talent, pet sitting with professional companies, childcare jobs and driving cab services like Uber.
- Buying a new car or a house can be tempting purchases with a new job. But it’s more important to build up some savings before taking on new debt.
How to save money for a rainy day
The gloomy financial climate has made millennials more aware of their finances. A study by a global asset management company shows millennials are making their retirement contribution at 23, compared to 27 for Gen X and 31 for baby boomers.
While that’s great news for Gen Y, the downside is that they are only putting aside 1-4.99 percent of their income toward retirement plans.
Retirement is part of an overall saving strategy. While it’s important to put money away for old age, it’s also important to sock away some money for unforeseen events. These funds can also contribute to life events like marriage and having kids. But sadly millennials are lagging behind on creating a safety net for themselves. Because of low wages and heavy debts, young adults today are unable to save nearly enough compared to previous generations.
But there’s hope. By making some lifestyle changes, millennials can stash away enough for a rainy day or important life decisions.
- We all need things. But buying something for half the price just feels so much better. Be on the lookout for deals – from groceries to cable, internet, cell phones and clothing items. Scrutinize all current spending on subscriptions and start plotting on how slashing down the expenditure. Cancel the gym membership that has not been used in the last three months. Instead, use free apps to do a workout at home or run outside.
- It might be tough to think about investing when savings are low. That is one of the key reasons millennials shy away from the stock market. But easy to digest financial information and millennial-targeted investment apps are a great guide for a novice on how to pick stocks.
- Living with parents might have started out as a temporary arrangement during college to save some bucks. But a lot of millennials are continuing the practice in light of fewer employment opportunities and bleak income patterns. Keep it up.
The financial struggles seem to be adding up for millennials. But they can take a page from their grandparents’ book, who learned to be prudent and frugal in dire situations. A consistent financial education is a must for the current generation. Being up to date on domestic and global economic news as well as information that can help them improve their personal finances are key. Millennials will need to constantly draw up budgets, revise saving and retirement fund structure as and when they get raises. And be practical about making big-ticket purchases.