When it comes to the financial habits and views of millennials, their parents and the Great Recession have influenced them the most, according to The Better Money Habits Millennial Report, published by Bank of America Corp. (BAC) and USA Today. Thanks to their parents, many millennials are good savers, but the aftermath of the Great Recession has them prioritizing emergency savings over longer-term goals. The lack of long-term savings presents a challenge and opportunity for financial advisors who can take the lead in helping this generation balance their financial goals. (For more, see: A Financial Advisor's Guide to Millennial Clients.)
Eight in 10 millennials believe their attitudes toward money were influenced a lot or some by their parents, the report found. Four in 10 say their parents influenced them a lot. Only 30% of parents, however, give themselves credit for influencing their offspring’s attitudes. Nearly three in five millennials say their parents’ advice or example most influenced how they handle their finances today.
“Our research shows that parents remain the strongest influence on the money habits their children develop and practice as adults,” said Andrew Plepler, Global Corporate Social Responsibility executive at Bank of America, in a statement. “The research suggests that millennials whose parents taught them the importance of wise money management and saving are better prepared to meet their financial needs later in life.”
Good Savings Advice
Both generations agree that saving and starting to save early is the most important financial advice parents can give. Two-thirds of millennials have money set aside for savings. (For more, see: Millennial Savers.)
Saving for emergencies is a priority for both millennials and their parents in the wake of the Great Recession. Almost half of millennials (49%) say the economic downturn changed the way they think about saving, investing and spending, and more are currently saving for an emergency than for anything else. Sixty-four percent of parents say the recession changed their financial behavior. About a third are now saving more for a rainy day as a result.
While 44% of millennials are saving for an emergency, far fewer are saving for longer-term goals. Only 29% are saving for retirement. Twenty-percent are saving for a car and 26% to buy a house.
“It’s good to see that millennials are planning for the unexpected in the short term, but having a long-term view early can make a big difference down the road,” Plepler said. (For more, see: Retirement Planning the Millennial Way.)
Nearly half of all millennials who attended or are currently attending college took out a student loan. The average payment is $201 per month. Of these, 54% say student loan payments have a lot or some impact on their ability to save. Twenty-percent of Gen Y-ers with student loans have delayed starting a family and taken a job they are overqualified for in order to make money because of the burden of the debt.
One in five parents (23%) pays for their child’s student loan and 8% have taken out an additional loan on top of student loans to pay for their child’s education. Parents who help their millennial children with student loans pay on average $158 per month.
Financial Apron Strings
The report found that the majority of both millennials and their parents believe the younger generation has struggled to find jobs and are still feeling the impact of the economic downturn of 2008. A majority of parents (56%), more so than millennials (44%), also think young adults have it harder living within their means than parents did when they were young. Many from both generations think millennials’ financial hurdles, such as buying a house or saving for retirement, are tougher than the previous generation.
These perceptions of difficulties when it comes to money could be why parents of Gen Y-ers are giving more financial support to their adult children than previous generations. Nearly two-thirds of millennials (65%) say their parents helped them out a lot or some when they were just starting out. This compares to only 36% of parents who say they received financial help at the same stage in life. Thirty-one percent of parents who help their children do it because they believe their offspring truly need their help. (For more, see: How Young Investors Can Avoid Financial Pitfalls.)
Forty-percent of millennials currently receive financial help from parents. This includes 22% of 30-34 year olds and 20% who are married or living with a partner. Almost half of millennials and their parents (44%) say that they are still directly asking for financial advice at least somewhat often.
Home Schooling and Monopoly
Millennials who credit their parents with educating them about finances properly tend to be better savers. Of those who say their parents did an “excellent” or “good” job, 74% have savings and 48% make a monthly budget. On the other hand, only 55% of those who think their parents did a “fair” or “poor” job have savings and 37% make a monthly budget.
So how did parents who did a good job of educating their kids on financial matters teach them? They used a number of activities. As it turns out, Monopoly money may have some real value.
The most effective activities associated with millennial savers include: opening a checking or savings account (70%), earning money for helping with chores (64%), saving for something they wanted (63%), saving money in a piggy bank (62%) and playing board games that involved money, such as Monopoly (54%). (For related reading, see: The Importance of Millennial Consumers.)
The two generations have differing opinions as to what age money lessons should begin. Seventy-eight percent of millennials think financial conversations should begin before the teenage years but only 52% of parents feel the same.
Despite their success in imparting financial wisdom, 18% of parents say they don’t follow the same financial advice they give to their children. Perhaps it’s just as well, then, that 42% of millennials believe they will need to support their parents “a lot” or “some” as they age. Only 18% of parents, meanwhile, think their millennial children will need to help them to the same degree.
The Bottom Line
Thanks to their parents, most Gen-Yers are good savers when it comes to the short-term. But in the wake of the recession, they aren't really saving for the long term. Fortunately for advisors, this generation is a big believer in financial education. (For more, see: Advisors Should Monitor Millennial Inheritance.)