Millennials & Money: Make the best of the hand you were dealt

No, it’s not just you; millennials have been dealt the worst economic luck in modern history—it’s a fact.

We’ve lived through economic catastrophes and global changes that have directly affected our chances of getting ahead.

Millennials entered the workforce at the beginning of the Great Recession, and while employment did eventually recover, millennials’ earnings never did.

They lost about 13% of their earnings during that period and had to settle for lower-paying jobs (internships, low-paying entry-level positions, etc.) that have set them back in their lifelong goals.

When things were looking up for millennials, another economic catastrophe hit—the 2020 Pandemic. Millennials had fewer savings than previous generations and were not equipped to handle the pandemic’s financial uncertainty.

It’s too soon to know how much wealth the millennial cohort lost due to unemployment and low wages. Yet, it isn’t looking good—experts are stating they may be the first generation in modern history to be poorer than their parents.

black millennial couple reviewing finances

The Challenges

The pandemic was the cherry on top of soaring inflation coupled with stagnant wages and can explain why 2 in 5 millennials would find it very difficult to come up with $400 in an emergency.

To give you a better idea of stagnant wages, The Pew Research Center states that “Millennials in 2018 had a median household income of roughly $71,400, similar to that of Gen X young adults ($70,700) in 2001.”

Now, with homes, medical services, food, and gas prices becoming almost unaffordable to most individuals, millennials’ wallets are being bled dry.

Now let’s talk about our debt: 4.8 million millennials have student loan debt (with an average balance of $38,877 per borrower), more than any other generation.

It’s challenging to get ahead with all this weighing on your back, and it doesn’t help at all that millennials make up 42% of the gig economy. “Gig” workers make overall less money, have less financial stability, and don’t receive healthcare or retirement benefits.

No wonder we have small savings accounts, less money invested, and own less property than any other generation before us.

We’re financially more fragile because of monumental situations that have shaped our finances and have been out of our control.

Take Charge

But millennials are not entirely destitute; there’s a lot we can do to take back control and overcome these economic odds.

There are three financial areas millennials should focus on to make up for lost time and get back on track to achieving their lifelong money goals.

1. Homeownership

Only 32% of millennials own a home. Still, I don’t think we understand just how much millennials are falling behind on homeownership until we look at the Federal Reserve DFA data that shows “the millennial generation holds approximately zero net real estate wealth.”

Chalking it up to “millennials prefer to rent” is unfair; the truth is we’ve been cheated out of accessible homeownership due to soaring housing costs, increasing mortgage rates, the rise of the corporate landlord, and a market where demand heavily exceeds supply.

But no matter the obstacles, homeownership is still worth striving for because it’s one of the best investments you could make—for the long and short-term.

Long term, you’re creating an equity nest egg (which you can tap into if need be). Every month, the money you pay towards your mortgage principal is money that’ll come back to your pockets in some way. Depending on where you live and your total income, you may receive tax advantages,  and you’ll increase your net worth – U.S homes appreciate an average of 3.9% each year.

Owning a home does have its hurdles, but the long term returns on your investment outweigh the initial costs—setting you up for a more stable and fruitful financial future.

2. Saving & Investing for Retirement

According to a study carried out by Morning Consult, 55% of millennials don’t have retirement accounts. Of the other half that does have retirement accounts—only 12% actively contribute to them.

And a 2017 GoBankingRates Survey found that 41% of millennials had around $1,000 in their savings accounts.

We’ve been talking a lot here on Paychecks & Balances bout prioritizing your savings and how to do so. Depending on your income, savings goals, and needs, there are different ways to start building your nest egg.

We cannot stress this enough: planning for your retirement and investing for the long-term are critical for surviving future economic hardships, achieving financial stability, and building your wealth.

3. Build Better Credit

You’ve heard the saying America runs on credit, and although this may be problematic for many reasons, that’s just the way it is.

It will be challenging to purchase a car, a home, or start a business with poor credit.

When you have good credit, you can qualify for a lower interest on loans, access lower rates for insurance, and ultimately have more negotiating power when making significant purchases.

But according to a survey by MyBankTracker, millennials have a lower average credit score than other generations. They’re more averse to using credit because they don’t know how to use it correctly.

This becomes a problem for millennials because building good credit is necessary. Last year, my partner was denied a business loan because he had only one credit card and little credit history.

Credit isn’t evil when used correctly, like choosing the correct types of credit cards for your needs, setting up automatic payments, and managing credit lines when you don’t need them.

Know that credit is not evil and instead can be powerful. You just need to start using it to your benefit because, with good credit, so many financial doors will open for you.

Closing Thoughts

The world is ever changing. The definition of wealth and status has changed, our priorities have changed, and how we move through the world vastly differs from Baby Boomers and other generations.

Countless articles state how millennials are becoming the lost generation because of “bad spending habits” or a lack of “financial know-how” when millennials have just made decisions and choices in response to a new world and economy.

Next: Are You Overthinking Financial Decisions?

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