The millennial generation, the largest in U.S. history, includes those born from 1981 to 1996. They are markedly different from older generations, especially in their financial habits.
Millennials are more racially diverse, better educated, and more internet savvy. They have lived through significant events like 9/11, the 2008 market crash, and the COVID-19 pandemic. They have also faced major fluctuations in the real estate and stock markets and carry substantial student loan debt.
These experiences have influenced their outlook and behaviors, making them distinct from previous generations. Millennials, now aged 28 to 43, are generally more value-oriented. Social issues, such as sustainability, also influence their spending choices.
Despite their unique interests, millennials share many of the same concerns as older generations about career growth and family life. Here are some ways their experiences have shaped their financial habits.
Understanding Millennial Financial Habits
Millennials have faced uniquely challenging financial times. The 2008 financial crisis, which occurred during their formative years, significantly impacted them: a 2019 study found the average millennial lost about 13% of their earnings during the recession.
Research shows that millennials born in the 1980s have a net worth 34% lower than expected due to economic recessions, indicating that global events have likely shaped their spending habits.
A 2022 retirement readiness survey by Goldman Sachs found that most millennials expect to retire between 60 and 64, but 34% feel behind on their savings. Currently, the millennial savings rate is 9.7%, yet 46% believe they won’t be financially prepared for retirement.
While baby boomers are expected to need just under $1 million for retirement, millennials may need around $1.44 million, according to Northwestern Mutual.
Debt Management
One major reason millennials are behind on retirement savings is debt. They owe about $1 trillion in total debt. This debt crisis has been exacerbated by high college costs and a lack of consistent education about loans and interest, leading many to take on excessive student loans. The average millennial borrower owes $32,800 in student loans.
Financial educator Berna Anat is concerned that young millennials are not adequately informed about long-term debt, which can “trap people for 20 to 30 years.” The average millennial also has $6,521 in credit card debt, totaling an average of $125,047 in debt.
“The rise in credit card delinquency rates is broad-based, but particularly pronounced among millennials and those with auto loans or student loans,” says Donghoon Lee, an economic research advisor at the Federal Reserve Bank of New York.
Spending Habits
Despite their debt, millennials are often seen as high spenders, sometimes viewed as indulgent and reckless with money. However, this stereotype is misleading. Danetha Doe, founder of the financial education company Money & Mimosas, points out that the cost of living has far outpaced income growth. Since 2000, the price of goods has increased by 67%, while earnings have only increased by 7%.
Millennials face significantly higher costs for education, housing, and cars compared to previous generations. For instance, they pay 100% more for homes than baby boomers did in the 1970s. A 2023 Deloitte study found that more than half of millennials believe buying a house will become more difficult in the future.
Millennials spend an average of $85 a day, making up 28% of daily per-person consumer spending in the U.S. This is expected to rise to 35% over the next 15 years. Their top spending categories are housing, healthcare, and personal insurance, similar to previous generations.
As the first generation raised on the internet, millennials lead in online purchases, often seeking convenience and competitive prices. They also prioritize sustainability, with 79% of millennials citing it as important in a 2020 study by the IBM Institute for Business Value.
Investing Behaviors
Millennials are balancing debt repayment with saving for the future. Sixty-four percent are invested, with cryptocurrency being the most popular choice, followed by stocks. A 2022 Investopedia study found that 65% of millennial investors believe they are doing an “above average” job managing their portfolios.
Despite their confidence, millennials tend to avoid high-risk investments, with 37% classifying their portfolios as “lower-risk.”
Strategies for Saving and Investing
Financial advisor Michael Liersch recommends that millennials set and track financial goals, especially for significant milestones like weddings or home purchases. He suggests the 50/30/20 framework: 50% of income for necessities, 30% for wants, and 20% for savings.
Liersch also advises building an emergency fund, starting with any amount, as it provides both financial and psychological security. High-yield savings accounts and Roth IRAs are good options for longer-term savings, while maximizing contributions to employer-sponsored 401(k) plans can enhance retirement savings.
Impact of Financial Habits on Millennials’ Future
Despite their financial challenges, millennials are the most confident generation in terms of investing, according to the 2022 Investopedia Financial Literacy Survey. Sixty-four percent are invested, mainly in cryptocurrency and stocks.
Financial educator Berna Anat emphasizes the importance of financial competence and empowerment, encouraging millennials to use their money to achieve both personal comfort and meaningful change.
For those seeking to improve their financial knowledge and prepare for retirement, there are numerous resources available to support their financial future.
Millennial Demographics in the U.S.
According to recent Census Bureau data, there are approximately 72.2 million millennials in the U.S., making them the largest living generation. Comparatively, baby boomers number 71.6 million, and Gen Xers total 65.2 million.
Millennial Income
The median pretax income for millennial households was $71,566 in 2020, according to the U.S. Census Bureau.
Best Investment Options for Millennials
Investing in the stock market, using ladder certificates of deposit (ladder CDs), or opening high-yield savings accounts are effective ways for millennials to grow their money. Retirement funds like 401(k)s and IRAs are also beneficial for long-term savings.
Millennial Credit Scores Compared to Other Age Groups
Millennials have an average credit score of 690. Here’s how they compare to other generations:
– Gen Z (ages 19–27): 680
– Gen X (ages 43–59): 709
– Baby boomers (ages 59–77): 745
– Silent generation (78+): 760
The Bottom Line
Millennials’ financial habits are shaped by their unique experiences. While they may be perceived as reckless spenders, they are actively saving for emergencies and retirement. However, economic volatility continues to cause concern about their financial preparedness for the future.
