Millennials and Their Money
Click image to expand infographic.
Millennials: Start Out Smart
The Millennial generation often is stereotyped as entitled and unprepared for the real world. However, a recent study shows that nearly half of Millennials currently own their own home; 44 percent have a bachelor’s degree or higher; and at least 60 percent already are contributing to a retirement account. Twenty-eight percent of Millennials already have investment portfolios too.
This is hardly a generation that is underperforming.
But Millennials are lagging in one area: their understanding of personal finance. According to the research conducted by George Washington University and funded by the National Endowment for Financial Education® (NEFE®), less than 25 percent of Millennials have had any financial education and only 7 percent show a high level of financial literacy.
Millennials’ Fragile Finances
The high cost of education and homeownership leads to considerable debt. More than 70 percent of Millennials have at least one source of long-term debt and 30 percent have more than one, often including student loans, revolving accounts and unpaid medical bills.
All this debt affects Millennials’ ability to manage their spending: 1 in 4 has overdrawn their checking account in the past 12 months, and 23 percent have taken a hardship withdrawal from their retirement account.
“Young adults may not understand how taking money out of their retirement accounts now has an exponentially negative effect on account balances in the future,” says Ted Beck, former president and CEO of NEFE.
It’s clear that financial education is the key to Millennials’ long-term success. Here are four tips for young adults to start out smart:
- Get a Handle on Debt: According to the research, the majority (53 percent) of Millennials feel they have too much debt and many are dissatisfied with their overall financial condition.
Paying off debt as soon as possible should be a high priority once a steady paycheck is coming in. Check out SAM’s smart ways to
pay off debt.
- Focus on Income: Starting a career is a complex and personal process. Among other things, Millennials should consider the long-term prospects. Is this a solid career that will generate the income to support future dreams? Visit SAM’s Work and Money section.
- Control Spending: Those first few paychecks can be a revelation. Overnight, you go from having $0 to a regular flow of income. But to build long-term success, it is critical to control spending. Millennials should calculate how much they have coming in each month, create a monthly budget, and earmark some for savings and investments. Check out SAM’s Spending and Borrowing section.
- Don’t Forget the Future: Retirement often is the last thing on your mind when you enter the workforce, but life happens much faster than expected. The difference between Millennials starting a retirement fund in their early 20s and starting in their early 30s could be $100,000 or more.
The early years also are a time to save for major purchases, like a house, and to build up an emergency fund for unexpected expenses. Want a strategy? Read SAM’s savings tips and take the Emergency Fund Plan course.
[Any reference to a specific company, commercial product, process or service does not constitute or imply an endorsement or recommendation by the National Endowment for Financial Education.]