According to new analysis of Fed data by the Young Invincibles group, Millennials have a median household income of $40,581, despite being better educated, millennials now earn 20% less than boomers did at the same stage of life in 1989, who earned $50,910 some 25 years ago.
Who are these Millennials?
Millennials (also known as Generation Y) are the demographic cohort following Generation X. There are no precise dates for when this cohort starts or ends; demographers and researchers typically use the early 1980s as starting birth years and the mid-1990s to early 2000s as ending birth years.
Millennials wealth compared to Baby Boomers
Millennials have half the net worth of baby boomers; their home ownership rate is lower, while their student debt is drastically higher.
Further more, a recent survey by Merrill Edge, which found millennials say they save 36% more than their general population counterparts report as over a third stash away more than 20% of their salary per year.
As for what they’re saving for, that’s another story. Whereas baby boomers save for retirement, Millennials want financial freedom and save for a desired lifestyle rather than exiting the workforce.
Millennials would rather spend money on travel, dining, and fitness than save for their financial future. They are also more focused on certain milestones like landing their dream job or traveling the world and are less worried about getting married or having kids. Bottom line, millennials are saving, just for shorter-term goals as compared to their parents.
A recent survey of over 1,000 Americans conducted from March 21st to April 5th by Merrill Edge showed a stark generational divide about different groups’ life priorities. Some of these findings may come as a surprise. Here are the results:
- Top life priorities: “millennials are the first generation to plan long-term for financial freedom instead of retirement.” Most (63%) Millennials are “looking to save a set amount of money or income necessary to enjoy their desired lifestyle, compared to the majority (55%) of Gen Xers and baby boomers who are saving so they can leave the workforce.” Millennials are “significantly more likely than their older counterparts to focus on personal milestones of working at their dream job (42%, compared to 23%) and traveling the world (37%, compared to 21%).”
- Additionally, “today’s 18- to 34-year-olds are also far less likely to emphasize the traditional family milestones of getting married (43%, compared to 51%) and being a parent (36%, compared to 59%).”
- Spending patterns: most millennials are more likely to spend money on “travel (81%), dining (65%) and fitness (55%) than saving for their financial future.” The report attributes this to FOMO, or the “fear of missing out”.
- Savings: millennials “say they save 36% more than their generational counterparts, with more than one-third (36%) setting aside more than 20% of their salary per year.” As for overall respondents, 42% are saving less than 10% of their salary, while 7% don’t save anything.
- Ironic given that Americans think the “Greatest Generation (54%) does a ‘very good’ job of saving, followed by baby boomers (45%), Gen Xers (19%) and millennials (8%).” In fact, just 15% of millennials think of themselves as good savers. So even though 45% of millennials consult their parents “always” or “often” for financial advice and think they’re better savers, it’s the opposite.
- Consequently, Americans aren’t saving enough and feel unprepared for uncertain scenarios. Most Americans “are not very confident they would be able to achieve their financial goals if they were to: get a divorce (71%), have children (64%), live to 100 years old (62%) or outlive their significant other (48%).” The problem, they are not “financially planning for these scenarios either, with only 5% saving for the possibility of divorce and 23% for the possibility of children.”
- Therefore, 59% of respondents think Americans should be required to save for their own retirement, and 48% believe financial education should be required.
- Technology: Two in five Americans report “using an online or mobile portal to manage their investments.” Respondents also say using these platforms “has a positive impact that makes users feel more knowledgeable (51%), empowered (31%) and savvy (14%).” Going forward over the next decade, Americans “believe emerging technologies will allow more people to invest (41%)” and that a “majority of investments will become automated (34%), the 401(k) account will no longer be the ‘gold standard’ (29%), and the market will be dominated by women (13%).”
- As for robot advisors, one in eight (13%) Americans currently use one or would consider it in the next year. Zeroing in on millennials, however, brings this figure up to 22%.
After all of this shocking data above about Millennials’ spending habits and their savings, we offer you some simple saving advice below.
Here are 7 simple saving tips for Millennials
- Decide what your objective is: Retirement, College, House, etc. Define a time frame to achieve your goal.
- Determine how much money you can “realistically” put toward your goal each month.
- Calculate the amount of return needed to reach your goal based on your starting principal, the number of years to your goal and your monthly contributions.
- Break down your goal into milestones that are achievable. These milestones could be quarterly, semi-annual or annual and will help make sure that you are on track to meet your objective.
- Select the appropriate asset mix that achieves your required results without taking on excess risk that could lead to greater losses than planned for.
- Develop and implement a specific strategy to sell positions in the event of random market events or unexpected market downturns.
- If this is more than you know how to do – hire a professional who understands basic portfolio and risk management.
