When it comes to money, Millennials face many quandaries. They’re taught they must attend college to get a good career, but a degree may require them to take on massive loans. They face a mountain of student debt, but they also need to save for retirement. They want a career in their desired field, but with scarce jobs, they’re often forced to take any job available, regardless of the pay.
To say Millennials face financial challenges is an understatement. As parents of Millennials, you’ve likely seen your children face such hurdles. You may have even considered putting your retirement planning on hold to help with college planning. Whether or not you’re currently supporting your child financially, it’s important to understand the impact our economy has on Millennials’ wealth management and financial planning capabilities.
The Financial Impacts of the Recession
The 2008 economic crisis was devastating for Americans with far-reaching impacts. 2.82 million properties filed for foreclosure, 824,000 jobs disappeared, and stocks plummeted, with the Dow Jones Industrial average hitting 6,507 at one point.
While few people escaped the clutches of the economic crisis, Millennials face some of the worst long-term consequences. Born between 1980 and the mid-2000s, many Millennials came of age during the recession — the oldest Millennials were 27 when the recession started in December 2007. They had to make career and college decisions during a time of great uncertainty. And when they graduated and embarked on their careers after the recession, they faced unemployment rates as high as 10% and an average student loan debt of $37,172.
The economy has been improving these last few years, but we still have a long way to go. We face nearly $19 million in national debt, average hourly earnings aren’t keeping up with inflation, and a gap between skills and job openings is creating a barrier to growth with 5 million jobs unfilled.
What does this mean for Millennials? For many, it means taking low-paying jobs to acquire some sense of security. And as we’ve learned, (link to article Millennials Facing Big Wealth Management Challenges Since The Downfall of Our Economy) this results in Millennials struggling to build their savings, pay off debts, plan for retirement, buy a home, and start a family.
It’s not surprising that, according to a Harris Poll financial wellness survey, 84% of Millennials have financial concerns. Five of the most critical financial challenges facing millennials today include:
- Managing Debt: According to data from the National Financial Capability Study, two-thirds of Millennials have at least one source of long-term debt — such as student, auto, or home loan — and nearly one-third have two or more sources of long-term debt.
- Establishing and Adhering to a Budget: It can be hard sticking to a budget if they feel they don’t earn enough to save and pay off debt. However, without a budget, it’s easy to overspend.
- Building an Emergency Fund: Lack of emergency savings funds is one of the biggest financial concerns among Millennials. Much of this concern relates to the lack of a budget and an intimidating stack of loan repayment statements. However, an emergency reserve is essential for unexpected medical bills, car repairs, or other misfortunes.
- Buying or Renting: While fewer Millennials own homes than they did 10 years ago, just as many want to escape the apartment rental. Millennials understand the benefits of investing in a home, but they also understand the difficulties of balancing a mortgage with their other debts.
- Saving for Retirement: While retirement may not be on the horizon, it’s still a considerable challenge and concern for Millennials. Beyond contributing to their workplace 401(k) account, Millennials find it difficult to reserve additional savings for an IRA or another investment opportunity.
Financial Planning and Saving During Difficult Times
Financial planning and wealth management may seem impossible or pointless to Millennials when they’re struggling to build their careers and pay off debts, but it is possible to save and plan for the future. Consider helping your Millennial child take some of the following steps.
- Spend with C.A.R.E. Those on a limited income must ensure they don’t overspend. Millennials should be looking for financial planning opportunities to review their income and spending, such as FLP Financial’s Spend with C.A.R.E. program. This program is designed to capture and categorize expenses, analyze and make the individual aware of those expenses, and help him or her realign and execute a spending plan that is congruent with their financial plan.
- Stick to a budget. Living frugally means spending money on needs, not wants. Millennials should take a detailed look at the money they have coming in and going out. What are they spending their money on and what costs can they reduce or eliminate? Once they start cutting back on unnecessary expenses, spending less will become second nature.
- Avoid Debt Like the Plague. An important step in building wealth is reducing debt. Many people face some form of debt, whether it’s student loans or car payments. Millennials can start to manage their debt by making a list of their debts and comparing the interest rates and balances to determine which loans to pay off first. Along with paying off debt, Millennials should avoid accumulating additional debt. Learn to live without using credit cards and, as mentioned earlier, spend for needs, not wants.
Millennials’ Financial Futures
Despite these financial hurdles, Millennials also have a lot of opportunities. They’re the most educated generation and will eventually receive $30 trillion in the great Baby Boomer wealth transfer from their parents and grandparents. And as the economy continues to recover, Millennials can start building their wealth and climbing the corporate ladder.
As parents, it’s natural to worry about your children’s financial futures. Other than providing financial support, there are several ways you can help your Millennial children make wise financial decisions. Review this information along with our whitepaper on cross-generational financial planning, which can help you further understand the financial challenges, beliefs, and values Millennials face.