As millennials grow older, that generation of young people born between the early 1980s and the early 2000s, they are clearly a force to be reckoned with by the rest of society. A larger generation than even the baby boomers, the U.S. Labor Bureau predicts that, by next year, millennials will be the largest active generation in the American workforce and that, by 2030, they will represent 75 percent of all American workers.
However, even though most millennials are working, few of them seem to take saving money or investing seriously at this point in their lives, something their parents and employers find more than a bit alarming. While many may chalk that practice up to youth, the truth is a bit more complex. From their staggering student loans to their employment options, here are five of the top reasons why millennials are not saving or investing for the future.
1. The Great Recession
Today?s millennials have inherited a much weaker economy than the generations that preceded them. From the dot-com bust to the housing crash, the Great Recession has taken its toll on this generation in a way that is truly unique. Many of these young people have seen their parents and grandparents lose jobs, hard-won retirement savings, and even homes during the past six to seven years, and while many of them were raised with a belief in the inherent value of saving and investing, the realities of the world they inhabit have left them skittish. (If you?re a millennial struggling with savings and investing, check out Absolute Wealth – it may be just the kick-starter to get you going in the right direction.)
Good jobs are increasingly difficult to find and land. Mediocre jobs still tend to have a lot of applicants, and most of the time, today?s recent college graduates are finding that the only work they can get is work for which they?re over-qualified and underpaid.
2. Student Loans – Arguably the Biggest Reason Why Millennials Are Not Saving or Investing
It was only a few decades ago that a student could work a full-time job during the summer, attend a state school, and pay for their tuition with their summertime effort. Those days are long behind us, and millennials have borne the brunt of the change. Student loan debt has been increasing by around 6% every year since 2008.
This increase in cost means the average student now graduates with around $30,000 in debt. Compare that with the average student in 2003, who graduated with around $11,000 in school debt. Add to that debt a weakened job market and wage stagnation, and it?s easy to understand why millennials aren?t treating savings and investment as higher priorities.
3. Fear of the Unknown
Saving and investing in a way that is wise and will earn money over time isn?t a straightforward affair. For many millennials, a lack of expertise and familiarity with financial language, the nature of the markets, and the negative press associated with many of this country?s biggest banks’ behavior all contribute to a fear of the unknown that keeps them from investing on their own or with the help of a financial adviser.
4. Monthly Bills
Another reason millennials aren’t saving or investing is because their monthly bills leave them with too little wiggle room. Rent, utilities, car payments, insurance, school loans, and more all add up quickly when you only pull a small, starting salary or you work an hourly job. Until most millennials pay off some debt or make more money, it?s likely that the reality of their monthly bills will continue to keep many of them away from investing.
5. Unemployment and Underemployment
Unemployment and underemployment have affected almost the entirety of the American workforce since 2007 and 2008, but millennials really do feel it more acutely. While they tend to have fewer financial and familial responsibilities than their older counterparts, their lack of experience works against them in the job market, and their inability to show that they have commanded and deserve a higher wage works against them too.
Many recent college graduates have found that the only jobs they can get are ones outside the industry in which they want to work, and oftentimes, they find themselves working in retail or the food service industry – jobs that don?t require a college education, and barely provide enough of a wage to deal with student loan debt. Additionally, many of them find that they aren’t offered full-time hours, which also keeps them too strapped for cash in the here and now to worry over saving and investing for their futures.
Ideally, millennials would not only have enough money each month to pay their bills, but they would also have enough to plan for a comfortable future. Unfortunately, current realities are not yet amenable to such a proposition. That being said, once millennials gain a bit of experience and pay off some debt – so long as the American economy continues its slow turnaround – there are still ways that they can create bright futures.
I am not saving as much definitely because of my monthly bills. I live on my own and I am in college. Things are a lot different than they were years ago.
Hi Alexis – I have to agree, basic expenses are more expensive than ever. There just isn’t much left over after paying for the basics. And you’re in college so you’ve got higher expenses and less time to make money. But it doesn’t get any better when/if you have kids and have to set up a household. I think that maybe a more fundamental problem is that incomes haven’t kept up with expenses. I remember when people could live well on modest incomes, but that was a long time ago.
1/2: I would argue that the student loans become a big problem only due to the great recession. If the cost of college was high but the ability to land lucrative employment was magnified greatly by a degree, then the means would be present to service the collegiate debt and to handle all other needs. However, when graduating from college to an uncertain market with declining prospects, they become an enormous boat anchor to be borne. In the current environment, costs of college are high, and jobs lucrative enough to get recent grads started in the right direction are much sparser than they need to be to get the economy running again.
3. Fear of the unknown: Financial markets are complex, and a good understanding of them takes years to come by. Even those with a decent level of knowledge can easily lose money on a bad deal. But that aside, one of the greater unknowns which may be dissuading millennials from investing is not knowing what predators may be lurking in those unknown waters. The big crash happened in part due to unsavory people making deals they knew would blow up, and making bets that this would happen. Not one of these were prosecuted, thrown in jail, tarred and feathered or otherwise held subject to ANY kind of justice. Banks were handed massive sacks of taxpayer coins and were given wonderful bonuses as opposed to any level of wrist slapping. With what money we are able to make being very dear to us, how can there be trust in financial markets? How can we trust that any investments will not abruptly turn for reasons unknown out of nowhere?
5. Underemployment is a tremendous problem for millennials. Many of those I know are either working in jobs they do not want or jobs which fail to pay enough to get them up and running in life. If you are not making enough to get out on your own to begin with, little will be left over to invest in anything productive, be it the financial markets or any kind of new venture. Eventually, after struggling enough and searching enough, you start to give up and look for whatever mental retreats you can find. Charles Hugh Smith has covered the toxic effects of Japans Failed economy on its millennial generation several times over at oftwominds.com. Watching the way things are going, it would be unsurprising (but no less terrible) if something similar began to play out here in the USA over the next 10-15 years.
Hi Jared – I’m really glad to meet another reader of Charles Hugh Smith. He has what I believe to be the most accurate view of what’s happening, and how it will play out (to the degree that anyone can predict such things). The fundamental problem, I believe, is an economy that’s become so dysfunctional that it can only continue with massive amounts of aid from the feds. The economy badly needs a complete reset, which would have happened had the Fed not “rescued the economy”. We’ve traded a desperately needed economic purge for a perpetual bumping-along-the-bottom-going-nowhere-but-look-at-that-stock-market-go economy, in which forward progress for the bottom 80-90% is close to impossible (few real jobs, debt is the only way to get through the moment, etc.).
My own feelings in regard to the Millennials or anyone else who hasn’t reached financial nirvana, is to hunker down and create a life based on more productive and satisfying work, and lower expectations for creature comfort. This is a complex topic by itself, and I’ve covered it in dozens of other articles on this site. Charles has covered it in hundreds of articles on his site. What’s sad is that so many people continue to work toward achieving a definition of success that’s based on the prosperity of the 1990s, rather than the harsh realities of the 21st Century. I believe that that perception will largely define who thrives and who falls into the economic ditch going forward.
The complication for Millennials – no matter what strategy they adopt – is that student loans taken under the mistaken notion of 1990s prosperity cannot be extinguished easily, especially if they’re in the high five or six figure level. Were I in that situation, I’d make paying them off Job 1, even if it meant sharing a place with two or three other people and working two or three jobs. There’s not much you can do until that debt is gone, and there’s no legal relief for the average person.
I’m a millennial and I think underemployment and debt are the main reasons why most people (in my generation) don’t really have anything saved. I’ve managed to scrape off quite a little savings from my day job, which I am underpaid. I feel quite okay that I’m starting my savings, but it’s still not enough. Most of my friends are struggling with their bills and debt and don’t even have a single cent saved. I’m hoping things will change for my generation, soon.
I’m of the opinion that the only strategy that will help the Millennials long-term will be a generational move into self-employment. There just aren’t enough quality jobs to keep everyone well-employed any more. Unless you work in IT, healthcare, education or government, career type positions are few and far between. I realize that being self-employed isn’t easy, but what’s the alternative?
After that, save as much as you can and stay out of debt. It looks as if the long-predicted decline in living standards has finally hit.
The student loans can be dented, damaged and eliminated…with focus and a very, very careful hand at navigating the route to payoff. Of course, one thing blowing up on you during the trip and it is over.
Part time work can be extremely helpful towards making this happen if you have already acquired full time employment which can handle your required bills/cost of living. However, it has to be well paid with flexible hours, an item which may be difficult to find. Even working 20 hours a week at a gig paying $10 hourly only yields about 7500 in take home pay if you consider a 25% effective tax rate (location/situation depending, your numbers may vary). This of course revolves around a number of assumptions…one being that said part time work is available readily and at that pay, another being the ability to sustain working that many hours for the 2-3 years it could take. The biggest downfall of this is that working too much at an additional part time job can have costs which occur and seem harmless…but undermine the whole point. For example, eating on the road between jobs, additional laundry costs, inability to utilize downtime in frugal practices, burnout.
The underemployment problem is far more damaging than the debt. If everyone is fully employed and working, odds are progress will be made on debts one way or another. Even if there was a student loan jubilee tomorrow, underemployment would leave many unable to take advantage of the tremendous windfall a jubilee would bring (aside from a massive sigh of relief, of course.)
Hi Jared – You make a lot of excellent points. I agree that under-employment is the basic problem, but it’s ironic that people are adding huge amounts of school related debt in the midst of it. It’s as if millions of students and their parents are oblivious to the reality that under-employment is the new normal in the economy. But people are still attending college as if it’s still the 1990s, and there are plenty of good jobs waiting after graduation.
Until reality sinks in, the student loan debt crisis will keep getting worse.