Baby Boomers who lost part of their nest eggs in the recession face a difficult retirement, but those born between 1979 and 1994, who have come to be known as the millennial generation, or Generation Y, face the most uncertain economic future of perhaps any generation in America since the Great Depression.
Three decades of stagnant wages were followed by the Great Recession, and the income and net worth gulf between the rich and the middle class is at its highest level in the past 90 years. The collision of financial reality with the habits and attitudes of this generation promises to create a severe economic dilemma for many of them.
Although they have frequently been labeled as materialistic, spoiled and saddled with a sense of entitlement, many millennials feel that they will not be able to achieve material goals like finding their dream job, buying a house or retiring until much later in their lives than their parents did. Paying off student loan debt has become increasingly difficult for many who are struggling with unemployment and low-paying jobs. The recession left over 15% of millennials in their early twenties out of work, many of whom are still struggling to get their feet on the ground. This will hurt them long after they do get work. Economic studies of those who were unemployed during the recession in the early 1980s revealed that they were still behind schedule financially 20 years later.
The economic fallout from events such as 9/11 and the market crash of 2008 has resulted in the adoption of an increasingly global mindset, with factors such as social responsibility and the environment frequently playing a key role in where millennials place their money. Many of them are instead choosing to follow either their own instincts or go along with their peers when it comes to investment choices, and have become somewhat distrustful of the financial advice given to them by their parents or financial professionals, who they often view as salesmen with only their own best interests at heart. The growing movement in the financial industry towards compensation models that are based upon investment performance rather than commissions has yet to make an impression on this generation. Millennials are also more interested in having a personal connection with those who manage their money than ever before, despite their comfort with the use of mobile and online technology to perform many investing functions.
A recent survey from the American Institute of Certified Public Accountants shows that over three quarters of millennials want to have the same clothes, cars and technological gadgets as their friends, and that around half of them have to use a credit card to pay for basic daily necessities such as food and utilities. Over 25% of them had late payments or are dealing with bill collectors, and well over half are still receiving some form of financial aid from their parents. One of the most disturbing findings of this study reveals that seven out of 10 young people define financial stability as being able to pay all of their bills each month. The study also outlines a difference in money habits between the genders, where men feel more inclined to keep up with their friends in terms of material goods while women tend to be more frugal and place a higher emphasis on saving money.
Of course, much of the pressure that millennials feel to conform to the financial habits of their peers comes from social media, where financial milestones such as home and car purchases are routinely posted for all to see and envy. A 2012 study on the global workforce by Towers Watson reflected some notable trends in millennial spending, such as their propensity to buy designer clothes at discount stores such as Sam’s Club and Costco as well as a tendency to purchase cheaper beers while investing in finer brands of wine.
The effects of the Great Recession can also be seen with millennials in the reduction of credit card debt and home and car purchases, as lenders have tightened up their requirements for loans and extensions of credit. But this has also served to reduce the amount of consumer debt that millennials carry, and a surprising number of millennials actually live within their means, even if their overall level of financial literacy is relatively low.
Although pay and compensation are still very important for most millennials seeking a job, it is not always the primary factor that determines where they work. Other issues have become increasingly relevant, such as autonomy, respect and being treated fairly, and they expect employers to be able to provide these conditions in their workplace. Their access to digital information has also made them much more aware of what their peers and superiors are earning as well as what they themselves are worth, and what their rights and privileges are in the workplace. They mirror their investment philosophy in that they want work that enriches not only themselves but the world around them.
The Bottom Line
Millennials face a set of challenges that will only be truly understood in hindsight. The future for Generation Y is more uncertain in some respects than for any previous generation, and its members have quickly learned that there are few, if any absolutes that they can count on. Their ability to succeed financially will depend upon many factors, including economic and political conditions and whether they can overcome the perceived sense of entitlement that much of society has branded upon them.