Millennial Money Myths and The Truth Behind Them
Millennials have a reputation of ineffectively managing finances. However, eighty percent of them carry cash, and forty-two percent writes checks. Entering the workforce during the Great Recession created a more conservative approach to major life milestones and even debt management.
The Millennial Generation
Ranging between 18 and 35, they have recently surpassed the Baby Boomer generation with respect the size. Today, they are the largest generation alive and have decades left in the workforce, making them a major economic force.
The following myths about Millennials persist and can impact how other generations view Millennials, as well as how they see themselves.
Myth #1: Credit Cards Mean Free Money
Millennials carry the second highest amount of credit card debt and owe an average of $7,000 per person. Two-thirds admit they would choose to charge activities with friends, even when they cannot afford the event, giving them a reputation of entitlement.
However, other generations also struggle with high credit card debt balances. For example, Baby Boomers, even though they are entering retirement, carry credit card debt, averaging $10,000 per person. Fifty-seven percent of Generation X maintain balances on credit cards, followed by 54% of Boomers. In comparison, only 37% of Millennials between 18-24 hold credit card debt.
The Truth Is: High-interest credit card debt is an issue with every age group. The ease of obtaining credit and low monthly payments entices overspending and can create future credit challenges. Using a credit card only offers an interest-free “loan” if consumers pay the balance off by the due date every month.
Myth #2: Millennials Do Not Concern Themselves with Credit
Millennials have lower average credit scores than older generations. Half of the individuals over the age of 70 have a credit score of 780 or higher, while only 2% of consumers in their 30’s have reached that milestone. Thirty-eight percent of those 30 or younger have a credit score lower than 621, while only 8% of individuals 70 or older have credit scores below 621.
There are a few factors which can account for the lower scores of, the younger generation. In 2012, The National Association of Realtors stated the average age of a first-time home buyer was 31. The Associated Press reported that individuals between 18 and 34 made up 12.3% of those purchasing cars 2015.
The Truth Is: Millennials are making major purchases, which can lower credit scores. Baby Boomers, on the other hand, have decades of debt management, which can raise scores. They also tend to have more stable employment, higher income and are paying down debt rather than taking out new loans. These factors often lower the utilization ratio, which compares balances to credit lines, raising their credit score. FICO’s algorithms use credit utilization to calculate 30% of the overall score.
Myth #3: Millennials Have the Most Debt
The student loan crisis, with balances exceeding 1.3 trillion dollars is a major influence on how Millennials view debt. Student loan balances rose 2.5 times over the last ten years. However, Millennials are not the only ones stressed over student loan debt. Even Baby Boomers now struggle to pay off loans for their education expenses and helping children or grandchildren pay for college. Today, 50% of Americans have student loans, lowering purchasing power across every generation.
The Truth Is: Millennials hold less overall debt than other generations. Consumers between 18 and 24 carry an average of $18,000 in debt, while older Millennials between 25 and 34 owe an average of $36,000. Compared to younger Gen Xers, which have debt balances averaging $82,000 and older Gen X with $130,000 in debt, with higher debt balances attributed to existing mortgages. Delaying homeownership creates lower debt obligations for many Millennials.
Myth #4: There is No Need to Save For Retirement
Cash-strapped Millennials often do not have money to save for retirement. Based on 401k account balances, Millennials have the least amount saved in their retirement accounts, with thirty percent holding balances under $10,000. Forty percent of Millennials have saved nothing for retirement.
The Truth Is: Even though many do not have large balances, those with company matching dollars are more likely to contribute. Millennials are watching parents enter retirement with major financial shortfalls. The 2016 Financial Finesse Generational Research report determined that Millennials are contributing to Roth IRA accounts and 80% are taking advantage of employer matching funds.
Myth #5: Traditional Homes and Families Are Not a Priority
According to a report conducted by Financial Finesse, only 26% of individuals under 30 had married, and only 20% owned a home. Twenty-one percent of Millenials reported putting off marriage, and 28% have postponed starting a family because of student loan debt.
The Truth Is: Millennials have a desire to participate in traditional benchmarks, but want to get finances in order before making large financial decisions.
Myth #6: Millennials Lack of Financial Understanding
Gobakingrates conducted a survey which concluded that 60% of Millennials understood income does not impact credit scores, and 43% could explain a 401k. However, only 36% accurately described a bank CD, and 29% knew there were three credit bureaus, which track debt payment histories.
The Truth Is: Their lack of understanding may have more to do with their limited experience with financial services rather than lack of interest. For example, many 30-year old’s have not worked for a company offering a 401k, which does not give them exposure to the product. Seasonal work and minimum wage job have a lower likelihood of offering benefits, making them unfamiliar with the financial terminology.
Myth #7: Maintain Irresponsible Money Habits
According to the U.S. Department of Labor, Baby Boomers and Generation Xers spend more per year than Millennials. Generation X spends an average of $66,981, where Baby Boomers spend $59,646. Millennials spend an average of $47,113 annually.
Millennials spend less than Generation X and Baby Boomers in nearly every category, including eating out, food, housing, clothing, and entertainment.
The Truth Is: Many Millennials make decisions based on their debt load, and put off major financial decisions in hopes of improving their financial circumstances.
If you are struggling with large amounts of high-interest credit card debt, contact the specialists at Finance Solutions today at (855) 331-4852 to receive a FREE debt analysis. They will review your current situation and develop a customized plan to help you reduce your credit card debt.