Millennials have a Great Depression mentality
Twenty years ago, as a Money magazine staff writer, I had the idea to write a money book aimed at my peers in their 20s and 30s. My mom came up with a snappy title, and I started pitching publishers. The general consensus: Young people don’t care about money — and they don’t buy books either. I was in my late 20s at the time, and knew neither was true.
A young editor at Simon & Schuster got it, too. Soon after, “Get a Financial Life” was born.
This week Simon & Schuster is publishing a totally revised and updated “Get a Financial Life: Personal Finance in Your Twenties and Thirties.” And much has changed. I have a 21-year-old child of my own. No one thinks young people don’t care about money. And this book is for, you guessed it, millennials.
What did I learn?
After I dug into the data, I realized that this generation feels, in some ways, very familiar. They aren’t like the wayward Generation X crowd I grew up in or even like my big brother’s baby boomers. With some exceptions, today’s young people resemble my parents — born in 1929 at the time of the Great Depression.
Like their elders, today’s young people came of age in a decade of economic upheaval that was not of their own making. The housing bust and ensuing recession showed millennials the hazards of buying more than they can afford. As a result, they tend to assume less high-interest debt compared to the previous two generations, they’re more cautious about taking on mortgages, and they’re more likely to keep to a budget and, overall, they value thriftiness.
But like every generation, millennials have landed in their own spot in history — and they’re living very different financial lives than the boomers or Gen Xers before them.
Here are five ways that managing money has changed for them.
It’s harder to get a good job
In 2016, according to data from the Economic Policy Institute, the unemployment rate for college grads was 5.6%, only a tenth of a point higher than the pre-recession rate in 2007. Not too shabby. What’s a concern, though, is underemployment — a figure that includes jobless people looking for work, part-time workers who want to go full time, and unemployed people who have recently given up looking. The current underemployment rate for young college grads? 12.6%. A three-percentage-point jump from 2007. The picture is worse if you don’t have a college diploma: The underemployment rate for high school grads is 33.7%. (in 2007, it was 26.8%.)
They’ll need their money to last longer
Three-quarters of millennials have been socking away money for retirement, and almost a third of them are setting aside more than 10% of their salary. Sounds pretty promising, right? But they need to beware: 62% of them have already siphoned money from their retirement savings — that’s about twice the percentage of Gen-Xers or boomers — and they’ll had a lot more time to tap into those IRAs and 401(k)s. With longer life expectancies meaning longer retirements, it’s more important than ever to save as much as you can — I recommend at least 15% of your income. (Some prognosticators put this at over 20%.) And, unless it’s a serious emergency, don’t jeopardize your retirement by treating your 401(k) like an ATM.
Many will be paying off college debt for a very long time
When I graduated from college, I had $10,000 in debt, which was more than just about anyone else I knew. Today, grads who borrow money (and that’s about 70% of them) are coming out of college with an average of $37,000 in student loans hanging over their heads. At a little less than half that figure, the median is a bit more manageable.
Regardless of which stat you choose, all that student debt is a source of daily anxiety. More than half of young workers worry about their college loans often or all the time. That’s just one finding American Student Assistance published early this year — and 44% say they have no clue how they’ll pay them off. When I was a kid, City University of New York colleges were tuition-free for a brief, glorious period. And once upon a time you could avoid serious debt by going to college in-state. Not so much anymore. Since 1995, tuition and fees at in-state public college have ballooned, on average, almost 300%.
It’s harder to buy a home
Scary student loans and uncertain employment prospects have made millennials postpone lots of life’s biggest steps, from marriage to kids to that first home purchase. Stats from Zillow say millennials are renting twice as long before buying than people did 40 years ago, pushing the median age of a first-time buyer in 2016 to 32. (When boomers were just starting out, the age was 28.) Of course the disappearance of zero-money-down mortgages has meant that millennials have to wait until they’ve saved up for a down payment. And one of the main hurdles that’s keeping young people from putting aside all that cash? You guessed it, student debt.
They’re less cautious about financial data online
Millennials grew up on the web, but when it comes to cybersecurity, they need to be more aware. Call it caution or call it paranoia, but half of baby boomers use secure passwords for all their online accounts. So how come only a third of millennials do? Experts have speculated that growing up online has made young people trust the web more than they probably should. One example: 20 percent admit to using public Wi-Fi to check banking information or pay bills online — a big no-no. Which could explain why more of them have had been hacked, compared to the national average. millennials may be experts when it comes to the web, but they may want to take a page from the old folks to make sure they’re protected.