Why Millennials are Having Trouble Saving
Millennials, (individuals born between 1981 and 1996) are part of Generation Y – or the millennial generation – and are so named because they were born or began to grow up near the turn of the millennium.
Millennials now represent the single largest generation within the United States, and are considered “digital natives” – as they are the first generation to be born into the digital age that features cell phone and internet technology and has played a significant role in day-to-day life (for some) from the beginning.
Coming of age following 9/11, the financial crisis and ensuing Great Recession, Millennials face sociological and financial challenges that are different than those faced by previous generations.
Throw in the backdrop of social media, its pressures and its influencers that can sometimes give rise to “FOMO” (fear of missing out) and it begins to become a little clearer why millennials are known for thinking and doing things differently than those in their parents’ and grandparents’ generations did.
Most millennials want little of an “old-fashioned” generation and mindset. But what of the old-fashioned habit of saving? Are millennials any good at it? Let’s take a closer look.
The Millennial Financial Picture
Millennials don’t have it easy. Following over twenty years of largely stagnant wage growth, the financial crisis and Great Recession hit, resulting in a tight labor market that left over 15% of those in their early 20s unemployed, and those fortunate enough to have jobs to accept in many cases lower salaries and heavier workloads.
The relatively weak employment climate that beset many millennials at the start of their careers now makes it harder for them to think in terms of reaching larger goals such as building a dream career, buying a house and saving for retirement. In many cases, these and other long-term goals including marrying and having children have been delayed indefinitely until they appear more financially feasible.
Next, throw in the matter of paying back student loan debt, which combined with weaker salaries and lower disposable income, often makes managing day-to-day expenses and paying the bills a greater priority than saving.
Compounding the student loan debt picture, many millennials still face somewhat limited employment opportunities within the “gig economy” that involve part-time work and opt to return to school to pursue advanced degrees – but often do so by borrowing more student loans.
Millennials and Debt
For those millennials struggling with unemployment, part-time employment and/or a low salary, paying off student loans and getting out of debt is problematic.
It can make sense to stretch out the term of student loan obligations as a means of lowering monthly payments and leaving additional funds for daily expenses or, more optimally – savings and investment. Doing so can allow for applying the principle of compound interest, which is best entered into during the earliest decades of one’s life – even if it means taking longer to pay back some forms of debt.
However, that doesn’t mean finding the right investment vehicles is any easier than it has been before. Meantime, these days, beyond saving for an emergency fund, it’s not so easy to find good reasons to put money into a savings account, as interest rates fail to keep up with inflation and result in a loss of purchasing power over time.
Meantime, credit card interest rates remain as high as ever, often eclipsing 14.9% APR. In some good news, a 2019 survey revealed that 32% of millennials had zero credit card debt, with 36% of those carrying credit card debt maintaining balances of under $5,000. However, that same survey also revealed that 58% of millennials held less than $5,000 in a savings account.
Millennial Spending Habits
According to a survey conducted by the American Institute of Certified Public Accountants, despite 34% of millennials considering saving money a priority, most of them cited current wages, monthly bills, living expenses and debt levels as obstacles that prevent them from saving adequately.
Furthermore, 55% of millennials surveyed admitted to “impulse shopping,” which is defined as the tendency to overindulge in unnecessary expenses and unplanned purchases that exceed $30 per week. Commensurate with impulse shopping is a tendency to fall delinquent on credit card debt and incur bank overdraft charges.
Unfortunately, over 40% of millennials also admitted to not paying their monthly credit card balances in full, as well as borrowing from friends or family while maintaining under $100 in their checking accounts.
Despite these tendencies, according to Investopedia, a majority of millennials still shop for similar clothes, gadgets and cars as do their friends, even though roughly half of them need to rely upon a credit card for monthly necessities such as food and utilities.
The Bottom Line
Many millennials would do well to expand their earnings power, which in turn would allow them to increase their ability to save. The economic climate in which many millennials have come of age has not been advantageous toward starting a career and saving.
When it comes to millennial savings habits, wage pressures and student loan debt are leading impediments, with impulse spending and social media pressures playing roles as well. Many millennials want what other millennials, and others, already have. Inherently, there is nothing terribly wrong with that, but a fair dose of budgeting and economic realism could be in order.
The best remedy for anyone’s inability to save is to do a combination of two things – earn more and spend less. Millennials are no different – and the challenge they – like all of us – face as individuals is to develop the knowledge, skills and abilities necessary to make themselves more valuable in the workplace or as entrepreneurs in order to increase earnings power and combat challenging monthly expense and debt levels.
Consistent with that, a clearly written, realistic monthly budget that delineates all sources of monthly cash inflow and expenses can go a long way toward developing better spending habits. Both in turn can create the excess cash flow that can then be allocated toward savings and investment.
About The Author: Steven Brachman
Steven Brachman is the lead content provider for UnitedSettlement.com. A graduate of the University of Michigan with a B.A. in Economics, Steven spent several years as a registered representative in the securities industry before moving on to equity research and trading. He is also an experienced test-prep professional and admissions consultant to aspiring graduate business school students. In his spare time, Steven enjoys writing, reading, travel, music and fantasy sports.
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