Talking About My Generation
~ By Gerald Rome, Colorado Securities Commissioner ~
For you baby boomers out there, this title is instantly recognized as a line from the song, “My Generation,” by the rock band, The Who. In America, we like to talk about different generations, and group them by a person’s birth date. For example, “baby boomers” were born between 1946 and 1964, and Generation X, between 1965 and 1980. As a generalization each generation has different likes, dislikes, and attributes. They have had collective experiences as they aged. A person’s birth date may not always be indicative of their own characteristics, but as a common group they have similarities. And there are differences among the generations when it comes to how they invest or plan for retirement.
When it comes to the “millennial generation,” (born between 1978 and 1994), there’s both good news and bad when it comes to their financial health. I’ll get the bad out of the way first: a recent study showed that millennials are struggling more than any other generation. In particular, they exhibit a number of issues when it comes to financially healthy behavior, and nearly across the board report concerns about their debt.
One major contributing factor is that the majority of this generation entered adulthood and were attempting to become financially independent during the years of the Great Recession, starting in 2008. An overwhelming 65 percent of millennials have a household income of less than $50,000 per year, and upwards of 13 percent remain unemployed. 23 percent of this generation spend more than they earn each month, 31 percent have unpaid medical debt, and a whopping 55 percent believe they will not be able to pay off their student loans.
These conditions are largely due to circumstances out of this generation’s control. However, the study also revealed some interesting factors that can be changed in order for the millennial generation to thrive financially.
First, and most basically, is a lack of financial education. Despite having the most opportunity for financial education compared to older generations, millennials score the lowest on financial knowledge, with only 18 percent exhibiting high levels of financial literacy when quizzed. This is worrisome, since despite being the most highly-educated generation to date, two-thirds of millennials don’t put any money away for emergencies, and 75 percent haven’t yet begun saving for retirement. To make matters worse, 43 percent of millennials report using a non-bank borrowing method (high cost borrowing such as payday loans and rent-to-own stores), and many of the survey sample reported bad credit card behaviors such as carrying a balance, paying only minimum payments each month, and acquiring late fees. These are the behaviors which can be addressed through financial education, and encouraging members of this generation to take advantage of such opportunities is one way of doing it.
Now for the good news: millennials are young, eager, and in a position where they can afford to take some financial risks. If men and women of this generation begin to think ahead now, if they invest wisely, seek out financial education opportunities, and continue to bounce back from the recession, there is still hope that they will enjoy the financial security that many in our generation are experiencing. Maybe they just need a little push from an older and wiser generation.