They rival Baby Boomers in numbers at 80 million strong. The lucky ones have received or are in the process of obtaining a college education, and have found or will find their place among the professional workforce. Some have learned hard lessons from the generations preceding them, view “debt” as one of the worst four-letter words, and some have even started saving for retirement.
They are the Millennials.
Few would argue that the throngs of those aged 19-35, also known as Generation Y, have less information at their fingertips than those who came before them. Many Millennials have done their homework and approach the ideas of wealth, the middle class and what it means to be financially well off from a non-traditional perspective.
According to the Employee Benefit Research Institute’s (EBRI) 2013 Retirement Confidence Survey, “The percentage of workers confident about having enough money for a comfortable retirement is essentially unchanged from the record lows observed in 2011. While more than half express some level of confidence (13 percent are very confident and 38 percent are somewhat confident), 28 percent are not at all confident (up from 23 percent in 2012 but statistically equivalent to 27 percent in 2011), and 21 percent are not too confident.”
Retirement planners long touted the three-pronged approach to financial wellness: Social Security, pensions and personal savings. Pensions are all but a thing of the past, and simple math calls into question the viability of Social Security. As such, Millennials are having to take more personal responsibility planning for their financial wellness once the paychecks stop.
Shawn Gullixson will turn 34 this year. The assistant vice president and manager of Vectra Bank in Colorado Springs is also executive director of Colorado Springs Rising Professionals, a local young professionals networking group.
Gullixson’s background is in business and commercial lending, but he also has held licenses to sell annuities and mutual funds.
He says the criteria for middle class have changed.
“It has for me, and for friends and people I interact with on a day-to-day basis,” he said. “I know people who fall into the lower and middle classes. They each have a difference in mentality when it comes to money. A lot of those folks are not counting on or relying on Social Security or government for retirement. A lot of the younger demographic has said they will be saving on their own, and if they can supplement that with Social Security, great. But people need to understand that retirement rests on them and create habits to save.”
Gullixson said he’s seen an upward trend in Millennial savings, so much so that saving has trumped home ownership on the list of financial priorities for many young professionals. Part of that he attributes to Millennials’ coming of age during the subprime mortgage crisis and the recession that began in the 2000s.
“I think Millennials want more flexibility that allows for a transient lifestyle,” he said. “They are looking down the road and weighing the purchase of a home versus saving for retirement and their contributions to their retirement plans are taking priority. Home ownership isn’t the priority it once was.”
Student loan debt has also contributed to delayed big-ticket decisions once viewed as milestones to adulthood, including purchasing vehicles and homes, as well as doling out the costs associated with weddings and parenthood.
According to the Consumer Finance Protection Bureau, the country currently carries $1 trillion in student loan debt. In addition, the Federal Reserve Bank of New York website states, “Student loan debt is the only form of consumer debt that has grown since the peak of consumer debt in 2008. Balances of student loans have eclipsed both auto loans and credit cards, making student loan debt the largest form of consumer debt outside of mortgages.”
It also states, regarding student loans: “As of the first quarter of 2012, the under-30 age group has the most borrowers at 14 million, followed by 10.6 million for the 30-39 group, 5.7 million in the 40-49 category, 4.6 million in the 50-59 age group and the over 60 category with the least number of borrowers at 2.2 million for an overall total of 37.1 million,” the site notes.
Gullixson said the enormous debt burden takes its toll on Millennial savings.
“When you graduate with so much student debt, it forces Millennials to delay things such as buying a home and maybe saving for retirement,” he said. “Some are looking at carrying this debt into their 30s and 40s.”
Carol Breglio, certified financial planner and owner of Breglio and Associates, an Ameriprise franchise, agreed with Gullixson’s assessment.
“It’s hard to look forward when there’s an immediate need to service debt from college,” she said. “But I believe you should balance all your financial needs instead of focusing on one at a time. I agree you should pay the highest-interest debt first, but at the same time, you’ve got to at least put enough into a retirement plan at work to get a match if it’s offered.”
Breglio added that money should be set aside as a reserve. “Plan for the expected amount of unexpected expenses,” she said. “They always happen and they’re not as unusual as we think. You have to have good cash reserves.”
Richard Carroll, 28, is a paraplanner with Breglio and Associates. He said one driver of student loan debt among young professionals is Millennials returning to school to earn advanced degrees.
“Some aren’t doing their research for job options in those fields,” Carroll said. “They’re spending $80,000-$100,000 on a degree and the opportunities may not exist in that field.”
Chris Long, 31, is a chartered financial analyst and financial advisor with Breglio and Associates. He said one of the most common financial mistakes made by Millennials is creating bad habits early in their professional lives.
“Many don’t establish the right habits before age 40,” Long said. “It’s hard to go back and change their mindset at that point. The first thing and the most important thing is paying yourself. That means saving right off the bat and living within a budget.
“There’s a lot of money left on the table if you’re not maxing out or even putting in enough to receive a match on your 401(k). That’s free money,” he said. “When people establish habits early on, they’re easy to stick to and eventually they’ll increase savings. If you get a pay raise, it’s easier maintaining a certain percentage if it’s already a habit.”
Gullixson said moving savings somewhere where it’s harder to access, like a money market account, makes it easier to create a habit of saving.
Carroll said one of the biggest handicaps for Millennials is technology.
“We are a generation of the Internet,” he said. “Millennials do research on the Internet, but they don’t seek out the advice of professionals. Anybody can put anything on the Internet leading young people to make poor decisions.”
Gullixson said there is no substitute for professional advice.
“Some people think working with a financial advisor might be out of their budget or that they are not at a point financially to work with a professional. I would recommend working with someone as early as possible.”
Breglio said she has seen a decline in clients in their 20s and 30s over the past 15 years.
“When I first started,” she said, “I’d see ‘kids’ who are now in their 40s, interested in how to save up to have a stay-at-home spouse or how to get started to establish financial security. I don’t see young clients at all anymore without prompting through their parents.”
Breglio recommends making financial planning a family affair, saying, “It’s beneficial for parents and kids to have continuity in their relationship with the same financial planning firm. There are benefits on both ends. It’s expensive [for young adults] to hire a financial planner to get started in the first place. And when children start on the right track, they are less a burden for the parents.”
Breglio said Millennials need to realize choices they make now limit or create options in the future.
“It’s about choices,” she said. “With financial security, you have the choice of staying a part of corporate America, you can be a consultant, you can travel. It’s hard for someone at 25 to think that far down the line. But [retirement] is not that far down the line.”
Gullixson said it’s never too early to start thinking about retirement and passing lessons learned to future generations.
“I didn’t have that lesson as a child,” he said. “It’s something we are providing our kids. The biggest impact will be education we provide to the next generation and how we educate our kids in the long-term.”
And Generation Y?
“Our generation shouldn’t be too proud to seek assistance,” Gullixson said. “Get help and ask questions. Reach out to the resources in your community.”