You may have heard that Millennials are different about money. When you look at them in comparison to Gen Xers and the Baby Boomer generations, the differences are really quite staggering. Rather than buy the latest new car or other retail goods they tend to prefer spending their cash on experiences. Explore other ways that Millennials approach money differently from their predecessors and what might be behind their money mindset.
Millennials’ Saving Habits
According to a 2016 Transamerica survey, 72 percent of Millennials have started saving for retirement, with many Millennials doing so by age 22. This is a much earlier age than previous generations. If these young workers keep up their good habits, they should be able to enjoy their retirement years.
Millennials also stick to a budget better than their parents. 59 percent of Boomers can keep a budget, while 78 percent of Millennials can stay within their budgets, according to a recent Chase survey. This budget-savvy mindset may be a result of growing up along the Great Recession and learning to save rather than spend.
Many Millennials have massive amounts of student loan debt. A study from Citizens Bank revealed that 37 percent did not know the interest rate on their loans, and that 15 percent were unaware how much money they owed.
This head-in-the-sand behavior will negatively impact Millennials’ finances. For anyone who has student loan debt, it’s imperative to know how much you owe, what the interest rates are, and how much of your monthly budget goes toward debt repayment. Getting student loan debt under control can greatly help one attain their other financial goals.
From 2013 to 2016, Millennials stepped up their savings rate by 1.7 percent. While other generations may be out-saving this generation in terms of gross dollars saved, none showed such a large boost percentage-wise. This suggests that Millennials are different about money in the sense that they’re thriftier than their Gen X counterparts.
Having seen a fair share of tumult and coming up during the Great Recession, one might assume Millennials are different about money and attainment of the American Dream. Although that dream might not mean two kids and a white picket fence anymore, they’re still largely optimistic. Many believe the American Dream is possible and that they’ll likely surpass their parents’ levels of success, and that their own children will surpass their own.
Millennials’ Spending Habits
Any discussion of Millennials and their spending habits must acknowledge the uncomfortable truth: they have less money than older generations do, and not because of their age. Despite their better saving abilities as a group, up to 25 percent of Millennials still overspend, and as many as one in two do not have enough money to meet their daily needs.
Many young adults were unemployed or underemployed during the recession. Those fortunate enough to have a stable job are earning less than, say, a Gen X-er did upon graduating college. Some may be experiencing growing pains while learning how to manage a budget, especially if they’re in debt.
Millennials are different about money especially when it comes to making big-ticket purchases like cars or houses. They’re entering the marketplace older than previous generations and less are plunking down the big bucks on what other generations have considered marks of wealth and success. The sharp rise in student loan debt over the past decade is one reason some Millennials say they’ve hit a block on the road to full-scale adulting. Others say their values are simply different than those of their parents and grandparents.
Rather than invest in the big things, Millennials pay for memorable experiences and instant gratification. More money is spent on food delivery, high end coffee, festivals and travel.
When it comes to saving for retirement by investing in the stock market, that just isn’t a high priority for this generation. Some argue this is due to Millennial’s preference for instant gratification, while others say young adults are strapped for cash, so they simply can’t invest in the market. Or, perhaps it’s just what happens when one’s attention is focused elsewhere and retirement is something one can hardly imagine in which case (in which case Millennials are hardly alone since nearly every generation has made the same mistake).
In any case, as the Baby Boomers leave their legacy, an estimated $30 trillion in wealth will transfer to the Boomers’ children, Xers and Millennials alike. This wealth transfer will undoubtedly change the way Millennials spend and save money but to what extent? Only time will tell.