5 Financial Factors For Millenials and Their Money
According to census data, millennials passed the baby boomer generation as the largest living generation in 2019. With that, millennials also get to experience some unique personal finance topics that older generations didn’t necessarily have to worry about. Read on for more.
Financial advisors are finding themselves starting to spend more time with the younger generation, going over timeless topics like diversifying your portfolio, making sure that your will is up to date, living below your means, and more. However, as Traverse City Business News recently mentions in speaking with some local financial advisors, there are a host of topics unique to the younger generation.
Massive College Debt
Per consumer spending website ValuePenguin, there are approximately 44.7 million student loan borrowers in the U.S., coupled with $1.52 trillion in student loan debt. Quick math shows this coming out to an average debt per borrower of $32,371, a historic high. Just in the brief time since the 2015-2016 academic year, student loan debt has soared by 20%.
Millenials and Gen Z, especially, carry much greater overall debt compared to other generations. They have lower wages compared to their mortgage debt and their other consumer debt, including student loans. And that sort of thing has made them inordinately unbalanced when it comes to their income and expenses.Teressa Hupfer, a financial advisor with Edward Jones in Traverse City
Having massive college debt can also prove to be a hindrance to other financial goals. Brian Ursu, president, and advisor with Traverse City’s International Wealth Advisors makes it one of his top goals in working with younger clients of his to make sure to bring clarity to the bigger picture of their finances.
Ursu’s book “Now What? A Practical Guide to Figuring Out Your Financial Future” examines the value of paying down debt and planning for any potential life milestones, from buying a home to family planning.
I’ve encountered many millennials that feel like, ‘Well, I can’t start investing until I pay down my debt. So, when we create a strategy on how to accelerate the payments and how to manage debt, we can really tackle that head-on and be really effective. You don’t have to wait until your debt is paid off to start participating in your 401(k) or to start an investment plan. We need to prioritize, do a little bit of both, and find the right balance.Brian Ursu
Side Hustles and Gigs
Hupfer thinks that one of the topics that have really reshaped the financial landscape for the younger generation is that of the gig economy. Granted what defines this can vary quite a bit, but make no mistake, it certainly is a large portion of the U.S. population.
Pew Research Center has found that 16% of Americans have made money via Uber, Postmates, Shipt, or DoorDash alone if that’s merely classified as the “gig economy”. Even more fascinating is that if you lump in all independent contractors, freelancers, consultants, or self-employed professionals, the number jumps up to 55 million or about 36% of American workers per the Bureau of Labor Statistics.
Before jumping headfirst into the gig economy, Hupfer advises that potential solopreneurs examine each factor. “It complicates tax scenarios for them. And they may not have the benefit of an employer-sponsored plan, so they’ve got to lean on themselves to figure out their retirement strategies.” She stressed looking into your health insurance options, retirement planning, and setting aside quarterly tax payments so there are no surprises there.
However, if your newfound passion is also a “side hustle“, Hupfer makes the recommendation to use that money to pay down debt, invest or even buy life insurance.
Their Future in Crypto
Younger generations also tend to statistically be “more bullish on cryptocurrencies,” versus their elders per Investopedia. 38% of millennials have invested in crypto versus 28% of Gen Xers, 23% of Gen Z, and just 6% of boomers. That said, most advisors still don’t recommend it as the main investment vehicle. Heck, look no further than last month’s crypto crash that wiped out almost $300 billion in a day according to the NY Times.
While a lot of investing can come with risk, Erickson Braund, founder, and CFO of Black Walnut Wealth Management says that the risk far outweighs the reward. “Investing is about risk vs return, and there is a huge amount of risk with cryptocurrency,” he says. A crypto-asset can easily become worthless the day it’s bought, Braund says, so risky, “to the point where I would look at it more like speculation or gambling (than investing).”
Both Braund and Hupfer prefer to look at long-term investing as a more successful means for their clients. It becomes about reducing risk but still getting solid returns. “In other words, what’s the least amount of risk you can take to get the best return?” he said. “Crypto is not that.”
“We do get asked about crypto quite a bit, and it is generally by those that are 50 and younger. Edward Jones doesn’t deal directly in crypto because it’s not federally regulated, and until the day it is, you won’t see us get involved in that,” said Hupfer.
Hupfer recommends clients think long-term. “I never recommend that clients look at their retirement funds as dabbling money,” she says. “That’s money you really want to be your safety net as the years go by after retirement.”
Ultimately Hupfer recommends when it comes to crypto that clients treat it more of a side hobby – sort of like the casino – as “you just don’t know what’s going to happen.”
Voting With Your Dollars?
With the roller coaster ride of a stock market at the moment, there can be a lot to consider as is the case with any new investment. However, Ursu has picked up on an interesting trend in younger investors – critically thinking about what companies they’re putting their dollars into.
“In large part, millennials believe differently about money than their parents or grandparents did,” says Ursu. “They believe money has power, and they want to use that power in ways that are going to be productive and good.”
Millennials are also tending to take social concerns more into their investment considerations than their parents, and definitely more than their grandparents.
Ursu explains, “I used to work with their grandparents, and their grandparents would say, ‘I don’t care what my money does, just get me a return.’ It could go to weapons manufacturing, or tobacco, or cancer-inducing things, and as long as there was a return, the older generations were OK with that.” Millennials tend to have more of an awareness of this, and so don’t want to do anything that’s going to violate their social concerns.
But Can I Actually Retire?
Combine college debt, rising costs of living, longer life expectancies, and Social Security concerns and you have a recipe for millennial retirement doubts about being able to retire when their parents or grandparents did.
Ursu thinks it’s quite overstated about millennials never being able to retire. “I’m actually really positive about that,” Ursu says of the retirement outlook for millennials. “Millennials are having smaller families, so they will have more discretionary income.” Earning potential is also a factor.
“Their earning potential and their ability to make really significant contributions toward their financial security and toward retirement are really robust,” says Ursu. “So, if younger people are paying attention to their investments, they could actually put themselves in a great position to retire early – earlier than their parents, perhaps.”
Retiring early is achievable for the younger generation. The Financial Independence/Retire Early, or FI/RE movement has been a hot topic in personal finance circles. Two of my favorite books, Financial Freedom, and Quit Like a Millionaire are top sellers with over 1,000 reviews on Amazon respectively.
To assist with potential planning, I also recently uploaded an Excel template for sale on Etsy that can help you get a rough estimate of when you could potentially hit a million in your investing goals as well.
With that, for any millennial readers out there, how are you faring with your finances? Do you agree with the unique topics called out above? Feel free to leave a comment below! As a millennial myself, I just thought it was great to see a publication bring light to that the status quo isn’t always the same for each generation.
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