Millennials have had a rough start to their financially independent adult lives. Sixty-five percent wonder when — or if — they’ll pay off their debt. An even higher number — 68 percent — say debt has had a negative influence on their everyday lives, resulting in anxiety and relationship tension.
And while Millennials came of age during the Great Recession, which resulted in them taking lower-paying jobs or being under- or unemployed for periods of time, they’re not in the worst shape. Millennials are digging themselves out of their hole, but Generation X grapples more with late payments and high mortgage and non-home debt.
Financial Rules Are Meant to Be Broken
We’ve long known that our society is fueled by the need to keep up with the Joneses. By convincing people that the American Dream has as much to do with owning a fancy car as it does life, liberty, and the pursuit of happiness, advertisers have made their brands millions of dollars. Status symbols become shorthand for success.
But the reality behind the vaulted windows isn’t quite so pretty: More than half of Americans break even or live beyond their means. While it may seem everyone on the block has a new big-screen TV, it’s possible — even likely — that it’s being paid for with borrowed money.
And that’s led to a set of rules being circulated by financial experts and media outlets everywhere that seem focused on scolding people for spending money as a way to counteract the advertising messages. This strategy treats spending as a punishable offense, giving people strong black-and-white boundaries to function within. And it invokes guilt and shame as a tool to keep people well within those boundaries.
This overly paternal kind of advice has made many financial gurus famous, but it’s also led to backlash: Why make people feel bad for spending what they’ve rightfully earned? And for ad-loathingMillennials, these guilt-inducing extremes don’t sit well: “If the stereotype of Gen X is a rocker out on the town, then Millennials are more like the responsible babysitters,” says Timeline’s Stephanie Buck.
How Millennials Can Adjust Their Approach to Get What They Want
All generations experience a crisis at some point. Millennials had the misfortune — or fortune — of hitting their crisis point right as they started to learn about stocks, mortgages, and managing their finances. They watched their parents work 80-hour weeks, skip vacations, and lose it all, anyway.
The result? Millennials don’t trust the stock market or the real estate market. “Most Millennials are sitting on piles of cash,” says James Lenhoff, CFP and president of Wealthquest, a comprehensive financial planning and wealth management services firm. “They don’t have mortgage debt and they’re scared to invest because their frame of reference is the crisis, and they’re still operating with that mindset. The crisis defines how each generation behaves, but Millennials have to reorient and get back to non-crisis behavior — they’ve held on to it way too long.”
One major advantage Millennials have is the gig economy: They have more ways to make money today than any generation before them. They have opportunities to be flexible and work when and where they want. In fact, Deloitte Insights found that “the amount of overall income received from alternative work is increasing, meaning more participants seem to be going all in when they do participate in alternative worker arrangements.”
Millennials are operating in a different economy than those who came before them, which brings both opportunity and inconsistency in terms of building cash flow and a budget. But Millennials can set themselves up like companies, rather than serve as individual employees: They can build out plans for how they bring in revenue, thinking like a business in terms of having better sales some months and allocating their funds across an entire year. This structure gives Millennials the control they want, both over their careers and their financial lives.
How Millennials Can Make an Immediate Impact
Beyond changing their long-term perspective on finances, Millennials can take steps today to give themselves more financial freedom:
Recognize the power of compounding interest over time. Millennials have to move past the idea of waiting until they’ve cleaned up their student debt or obtained a full-time job with steady pay and benefits before saving. Some Millennials will always work gig jobs, and putting money into a Roth IRA and building home equity are ways they can make progress now on the future they want. Delaying the process simply means they’re missing out on the benefit of time, which only makes building their wealth more costly.
Avoid pursuing extra degrees without a purpose. “Millennials were so terrified that they made bad long-term decisions in order to feel they’ve made progress on something,” Lenhoff says. “They came out of school right into the teeth of the recession, and the answer was to go back to school, which was a double whammy. They accumulated more debt to get an advanced degree that still didn’t help them land a job.” He says those who earned MBAs didn’t necessarily make bad decisions, but those who earned them for no reason made bad decisions because they couldn’t recoup the costs in a market that was saturated with experienced workers. Higher education is a fine goal to achieve as long as there’s a clear path to a career that will pay well enough to reimburse the cost of gaining that extra skill.
Prioritize your margins. When we’re in crisis mode in terms of finances, it’s a lot like running: We can exert ourselves, and our body can meet the demand while it’s needed, but after that, we have to go back to a resting heart rate that’s comfortable. Our margins are the financial equivalent of a resting heart rate. The goal should be to manage our finances in a way that keeps our lifestyle easy to afford and allows for the occasional unexpected expense without having a heart attack. Rather than follow the advice proffered by banks, advertisers, and colleges, Millennials need to do some self-examination to determine whether they’re giving themselves a big enough buffer for the things they truly care about, such as experiences.
Millennials may have had a difficult launch, but their outlook and willingness to work hard can enable them to change their own fortunes. While they may have absorbed a fear of money early on, they stand to gain financial freedom if they can put it down — and they may just show other generations how to develop a healthier relationship to money.
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