Millennials: Finances, Investing, and Retirement

Millennials are the generation born between 1981 and 1996, as clarified by the Pew Research Center, though some consider the range to start in 1980 and end in 2004. This generation, also known as Generation Y (Gen Y), follows Generation X (Gen X). In terms of population, millennials have surpassed the baby boomers, making them the largest generation in American history.

Millennials got their name because they were born near or came of age around the year 2000, the start of the new millennium. As the first generation to grow up in a digital world, they are considered digital natives. Technology has always been part of their lives; it’s estimated that they check their phones up to 150 times a day. Serving their technological needs has been a major driver for the growth of Silicon Valley and other tech hubs.

Research shows that millennials are the most ethnically and racially diverse generation in U.S. history. They tend to have progressive political views, are less religious than previous generations, and have distinct economic challenges.

Millennial Economic Picture

Millennials face the most uncertain economic future of any generation since the Great Depression. Three decades of stagnant wages were followed by the Great Recession, leaving over 15% of young adults jobless. Then came the COVID-19 pandemic, which disrupted financial markets, housing, and employment.

While the job market has improved since the recession and pandemic, wage stagnation persists. This is partly due to a 20-year trend of decreasing labor market mobility, which began when the oldest millennials entered the workforce around 2000. Reduced mobility gives employers more power in wage negotiations, known as monopsony, leading to lower wages.

For many millennials, starting their careers during this trend has made it hard to catch up financially. They also carry record levels of debt, mainly from student loans, adding to their financial stress. Despite these challenges, millennials have been diligent over the past decade. A 2021 report showed that they focus on their immediate financial well-being by budgeting and setting up emergency funds. They also lead in long-term financial goals.

Work and Income

The increasing wealth gap has resulted in millennials starting with less household income. Their main financial priority is covering day-to-day expenses. During the recession, many postponed higher education or additional degrees due to a weak job market. As the job market improved, many turned to the gig economy. The pandemic further shifted many jobs to remote work, with 74% of millennials not planning to return to the office full-time, according to a 2020 Gallup poll.

Some millennials struggle to find full-time positions and settle for part-time work, but overall, they are earning more than previous generations. The median income for a millennial household is $71,566, according to the U.S. Census Bureau.

Becoming Financially Independent

Living paycheck to paycheck makes financial independence difficult. Achieving independence should focus on increasing income rather than extreme frugality. While saving is important, increasing earning capacity through education or work experience can help broaden income horizons.

Getting Out of Debt

Paying off student loan debt is tough, even with a job. While prioritizing debt repayment is natural, it might not always be the best strategy. It’s important to also invest and let your money grow. Extending loan repayment periods to lower monthly payments can free up cash for building a retirement fund. In your 20s, compound interest works in your favor, and it’s a good time to take investment risks.

Certain types of debt, like student or auto loans, can help build a good credit history, which is important for securing future loans and favorable interest rates. It’s also crucial to manage credit card debt responsibly to avoid high-interest charges and maintain a good credit utilization ratio.

Saving for a Big Purchase

Saving for large expenses, such as a home, requires substantial planning. Stricter lending guidelines mean that millennials might need a significant down payment. Low-interest savings accounts can lose value over time due to inflation, so it’s wise to keep a small emergency fund in the bank and invest the rest.

The Millennial Life View

Millennials often view their careers and retirement differently from previous generations. Known as the “instant gratification generation,” they seek work-life balance and fulfilling jobs from the start. Many plan not to retire because they love their work. Buying long-term disability insurance while young and healthy is another smart financial move.

Entrepreneur for Life

Many millennials envision a lifelong career driven by passion, not necessity. Michael Solari, a Certified Financial Planner, took control of his career after being laid off in 2009 and now runs his own firm. This flexibility allows him to balance work and life, which he values more than the traditional retirement model.

Even those planning to work indefinitely should still save for retirement to have a safety net. Investing in the stock market, ladder CDs, or high-yield money market accounts can help grow savings. Consistently investing small amounts over a long period can significantly increase retirement funds.

Millennials and Retirement

Despite seeing their parents struggle with economic downturns, many millennials are not adequately preparing for retirement. About 21% lack employer-sponsored retirement plans, and 70% believe they can live on $36,000 a year in retirement, which is unrealistic given current living costs.

Millennials who invest in the stock market may have a more secure retirement. Historically, the stock market has offered high return rates, and starting young allows more time for investments to grow.

Partial Retirement Now

A moderate approach to retirement might involve part-time work and continued saving. This could include freelancing or working for a location-independent business, allowing for a mix of work and personal interests.

How Millennials Invest

Millennials are often cautious about investing but use technology to their advantage. They leverage social media, apps, and online tools for investing and financial planning. Social and environmental responsibility often influence their investment choices. Many also use robo-advisors and other digital financial services.

New Breed of Investing Tools

Millennials use various apps for investing:

– Wealthfront: Focuses on asset allocation with low fees.

– FutureAdvisor: Manages investments automatically for a low fee.

– SigFig: Provides free automated investment advice.

– LearnVest: Matches new investors with personal financial planners.

– Acorns: Invests spare change from everyday purchases.

Conclusion

Many millennials are planning for retirement, though it may look different from previous generations. They focus on building passive income streams and integrating enjoyable activities throughout their working lives. Overall, millennials are saving for retirement and remain hopeful about their financial futures.

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