A survey of 5,500 millennials (aged 23-35) shined a worrisome light on the financial acumen of the group as a whole. George Washington University and PwC Bank recently analyzed the survey data and found 8 noteworthy trends (I’ve added my comments in italics to each):
1. Millennials ave inadequate financial knowledge: when tested on financial concepts, only 24% demonstrated basic financial knowledge (and only 8% demonstrated high financial literacy).
This is sad, but unfortunately, personal finance teachings are not in school curriculum and when the very large majority of parents are awful at personal finances in their own right, the only way millennials are going to gain adequate financial knowledge is through self-study.
2. Millennials aren’t happy with their current financial situation: when ranking satisfaction on a scale of 1-10, 34% were very unsatisfied.
In my personal story, I highlighted that financial dissatisfaction is what led to me creating this blog. New grads in most career fields have ridiculous amounts of educational debt, zero financial acumen, and lower pay levels. If anything, I’m a bit surprised this number was that low.
3. Millennials worry about student loans: when asked about their ability to repay their student loan debt, more than 54% of millennials expressed concern.
Student debt is a crisis in development and now totals over $1.5 trillion and growing. At some point, the bubble is going to burst.
4. Millennial debt crosses economic and educational lines: among college-educated millennials, a staggering 81% have at least one long-term debt.
We’re a nation indebted, unfortunately. This is not surprising, but it is sad.
5. Millennials are financially fragile: nearly 30% of millennials are overdrawing on their checking accounts, 53% carried over a credit card balance over a 12-month period, and 50% don’t believe they could come up with $2,000 should an emergency arise.
These are all troubling numbers. Overdrawing checking accounts, carrying credit card balances, and lack of an emergency fund are all big personal finance no-no’s. Living paycheck-to-paycheck is surviving, not thriving.
6. Millennials are heavy users of Alternative Financial Services (AFS): in the past five years, 42% of Millennials used an AFS product, such as payday loans, pawnshops, auto title loans, tax refund advances, and rent-to-own products.
This one jumped out as a huge red flag to me. Payday loans and other scummy high interest loans like those mentioned are legal scams that push those who are desperate off the financial cliff (case in point: 50% of those with a high school degree or less use them). They should be avoided at all costs as they only dig deeper holes, and the fact that this many millennials have turned to them is deeply disturbing.
7. Millennials sacrifice retirement accounts: only 36% of millennials have a retirement account. And more than 20% of millennials with retirement accounts took loans or hardship withdrawals in the past year.
Yeah, not good. With the associated tax and penalty hits, 401K loans and other retirement account are slightly better than taking on new high-interest debt, but only slightly. But only 36% of millennials have a retirement account? Holy crap! That’s a shockingly low number.
8. Millennials don’t seek professional financial help: even with inadequate knowledge, only 27% of millennials are seeking professional financial advice on saving and investment.
I’m cool with this one. “Professional financial help” is often overpriced and misguiding guidance from financial advisors with a conflict of interest in financial asset management and not “teach me how to swim” help. It would be great to see more millennials pursue the latter though, which is a great segue to my takeaway from this research…
Millennials Need Financial Mentorship
When you match these numbers with others that I’ve highlighted in the past, i.e.:
millennials have a negative personal savings rate- the majority of millennial savings are in cash and not in investments that could be working for them
- millennials won’t get inheritances to save them
- millennials have crappy average credit scores (and employers are not hiring us because of it)
- millennials have become the boomerang generation
it is hard not to come to any conclusion other than that millennials are being pushed off the financial cliff (or pushing themselves).
Millennials need financial mentorship. Serious financial mentorship. I’m not talking about investment management, I’m talking about learning all of the personal finance fundamentals and then some. It would be great if this would be taught in every school curriculum, but I won’t be holding my breath for that. This needs to be self-initiated.
It is insanity to me that most millennials work 40+ hours a week, then turn around and spend zero hours on personal finance time investment. The fact that you are reading this right now tells me that you are not in this boat or are at least on the right path. But so many of your peers are not. Lend them a hand, teach them what you do know, and learn new things together (you could start by directing them to this blog, wink, wink). In-person financial mentorship is great, but there are so many other great ways to get it – books, magazines, blogs, forums, workshops, etc.
Ending on a bright note, I truly believe that there is no better time in history than right now for individuals to financially succeed. But it has to start from self inspiration or the inspiration of others. Let’s get started.
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Financially literacy at the root of everything is just math… I’m not sure I feel anything should be done about it in schools as far as teaching.. Dealing with money is a life skill that people either choose to learn and take on or they don’t. It is that simple.
I feel bad for those who chose not to utilize the skills they were taught in school and applying them towards their life and their financially life skills..
It is a sad world for those who don’t….
Yes, math is huge. But why not teach math and personal finance?
Let’s imagine a class(es) that taught the following topics, just to name a few:
– compound interest
– debt avoidance/management
– the math behind early retirement
– investing basics
– insurance basics
– energy/resource saving
– frugality
– tax strategy
– retirement accounts
don’t you think everyone would be better off?
Hi, I agree with you 100%, I am a millennial and I teach millennials at a vocational college in Florida and it is amazing how many of my students have no knowledge of the basics of personal finance. I have begun including personal finance topics in my lessons and classroom discussions, but I feel like I am not reaching enough people or reaching people who even want this information. I want to do more, any ideas how? Thanks!
Have you considered a career (or part time) as a financial advisor (pay per hour/session vs. for assets managed)? Or maybe you could start a local group (i.e. at library) to discuss financial topics?
Hi G.E.,
Yes, I am very interested in a career as a financial consultant, even on a part time basis, but I am finding that it is very difficult to break into this industry. Most positions online are asking for wealth managers. I would love to start something on my own even as just a side hustle, any ideas?
Some of my blogging friends offer their services as “financial coach”, but there are a lot of gray lines. I don’t know all of the details, but might be worth looking into.
There are also reasons to be optimistic about the Millennial generation:
– most educated generation in US history
– 2/3 more inclined to save v spend
– By 2018 Millennial spending power will surpass their parents generation
– $30 trillion will be passed from Boomers –> x –> y
Financial literacy is important but I feel more important is looking at ones finances as part of a comprehensive financial plan aligned to your current stage of life that address both risk and investment opportunities. 73% of Millennials want a financial plan but few have one in place.
Education is always good, but on the others and there are reasons for optimism, but disagree on a few of your stats:
“2/3 more inclined to save v spend”
Actions speak louder than words. The millennial personal savings rate is negative.
“$30 trillion will be passed from Boomers –> x –> y”
The large majority of boomers don’t have enough retirement savings to cover their living expenses. There may be a lot of ‘wealth’ transferred, but most of it is concentrated in the hands of the top 5%
I took economics for two years at secondary school. Looking back now, I realise that this was a massive contributor to the financial sense I have today. It taught me so much, and demystified a subject that seems painfully complicated when people talk about it, but is actually just a lot of jargon sitting in front of some basic rules.
Yeah, I took econ, stats, finance, and accounting at college and felt the same way about those topics.
I can only think about old-school solutions for these “new” problems:
– Less TV and more books… would reduce exposition to consumerism messages eventually lead to more sharing.
– No digital books, paper books! Paper books can be read, borrowed, lent, exchanged, donated to a library, borrowed from a library. Why spend 30 bucks each to get our own copy, when we can share!?
Getting a financial course at school is unlikely, in my opinion. I prefer the idea of calling parents to take responsibility upon teaching this to their children.
Just my 0.02.
This is a disturbing truth.