Things Parents Tell Their Millennial Kids About Money (And What Should Happen Next)
Let’s start by addressing the elephant in the room. The term “millennial” is problematic.
Firstly, it encompasses a broad age range (persons born 1982 to 2002) with a multiplicity of divergent experiences and life circumstances.
Secondly, for some, it’s an emotionally loaded term as the media have often sought to paint everyone in this age group with the same, often unflattering, brush.
“The term “millennial” has ceased to really be descriptive and frankly seems to have entered the lexicon as a synonym for an adrift and mostly clueless 20-something…”– A Millennial
With that said, let’s proceed.
The commonalities of the millennial financial experience matter. People in the upper end of this age group will soon enter what will likely be their highest earning years.
Younger millennials are navigating early career decisions and making choices with long-lasting consequences.
The millennial financial experience looks quite different than other generations.
Largely due to the cost of higher education, their adulthood will likely feature higher levels of debt than their Gen X and Baby Boomer elders.
Many will face childcare expenses that can only be described as extortionate. In many ways, the financial life of a millennial is, if not completely unique to the generation, certainly defining.
Words of Wisdom?
What advice have millennials received from their parents?
In a social media group, I asked both millennials and the parents of millennials with words of wisdom, what advice they dispensed.
As you might suspect, the dominant theme was save, save, and oh yes, save.
“You can keep 20% of what you earn in high school and the rest goes into a savings account and use it to invest in Roth IRAs.”
“Save at least 15% of every dollar you earn. Keep a cash cushion for 6 months of necessary expenses, then invest the rest for your future.”
More tactically, tutelage in proper credit card use often featured in the advice passed down to Gen Y.
Millennials reported that they were encouraged to have a credit card, but to be sure to never carry a balance and to pay on time to build a solid credit score.
Were they listening?
Perhaps not all of them. According to research from the National Foundation for Credit Counseling, adults aged 18-34 are far more likely to skip credit card payments than their parents.
There’s an obvious selection bias at work here.
If you’re a parent predisposed to dispensing financial advice, it’s unlikely that your advice would be anything other than the typical prudent suggestions we see above.
It’s not probable that many parents advise their children to put it all on a roulette corner bet. Disappointingly, in my admittedly limited survey, there was no remarkable thematic investing tips (“One word. Plastics.”).
The more interesting question for millennials might be, “What factors prevented you from following the wise counsel of your elders?”
What Millennials are Doing
This brings us to the next set of well-reported statistics about millennials and money:
- The wealth gap between what millennials have and what their predecessor generations had at the same age is significant. According to the Federal Reserve Bank of St. Louis, persons born in the 1990s have 50% less net worth than what would be expected by their age.
- Average college tuition at public universities increased more than 200% over the last 20 years. It’s simply not reasonable to have the same expectations for graduating debt free for a millennial as for a Gen X-er or Baby Boomer.
- Millennials are less likely to own a home than previous generations at the same stage of life. Much of the reason lay in changing lifestyle preferences, but the increasing unaffordability of home ownership, particularly in urban areas, has blocked this path to wealth creation for many.
Knowing that the millennial personal finance experience is fundamentally different from their parents, shouldn’t inter-generational advice evolve to meet the moment?
The basics of living below your means, and investing early and often, are evergreen. But is there anything more that can be said to meet the realities of millennials’ current situation?
With their children now fully adult, Boomer and Gen X parents can now broaden the scope of their advice.
“ [I] didn’t consult [a] financial advisor because [I] thought it was unaffordable.” – A Parent
“I enjoy talking to my dad about IRAs, house mortgages, and other financial processes. I think these conversations change as children get older.”
For example, parents can relay their lived investment experience to their millennial offspring.
While the oldest millennials may have suffered losses in 2009, most have never meaningfully experienced a bear stock market.
Certainly few millennials would have been homeowners themselves during the Great Recession. None would have been old enough to have been a participant in the dot com crash of 1999.
With the benefit of time having taken some sting out of the memory, there’s great value in Gen X and Boomer narratives that relate how they reacted during those difficult economic times.
Ask to hear those stories.
In fact, the teachable moments flow both ways.
Turn the tables
Thirty-somethings may be much more comfortable with newer investment concepts, such as robo-advisors and ESG investing, than their Boomer parents who came of age financially with an old-school commissioned financial advisor.
Although low cost ETFs were first developed in the early 1990s, more than 20 years passed before their growth exploded.
Similarly, the beloved by many target date fund is only recently widely popular despite having been first created in the last century.
The wealth of online financial education resources available now eclipses by far what was available when parents of millennials were young. Millennials can be their parent’s financial sherpa.
“I appreciate that my parents are honest with me about what their financial situation is like. It’s important as parents age, to have conversations with their children about wills and other financial matters so everyone can be prepared.”
And it’s not just about newer financial products, mindsets and biases are important to explore too.
What defines success today for a millennial may be quite different than their parent’s definition.
The goal of decades of continuous full-time employment in one occupation with a single employer feels ancient to many.
Financial wisdom needs to evolve to meet the different aspirations and priorities of millennials.
Millennials can turn the tables and educate their parents on what it means to be financially savvy today.
My three grown millennials graduated college with zero debt. We were open with them about our finances. They knew we started with nothing and ended up with multiple millions. They understood we bought everything but the house with cash, and we paid the house off early. They knew we give 10% of our gross income away. They understood my wife chose stay at home parenting for her career. They know they will each inherit large seven figure amounts from us but also know they will likely be 60 or older before that happens. And now as adults they seem to be frugal and smart with money. They come to me with investment questions since they know it’s one of my areas of interest.