As the nation moves cautiously into the next stages of recovery, Millennials, Gen-Xers, and Boomers alike are redefining “essential spending.” While a reset of personal finance habits can be beneficial for any generation, we’re seeing that Millennials in particular are looking to reconstruct their personal finances framework. There is also a large number of parents of young adults of this generation looking to provide guidance, even as they themselves may be facing considerable disruptions.
The One-Two Economic Punch
Mils feel that, economically, they’ve been burned twice, as young adults in 2008, and now again in 2020. Many are on the threshold of what has traditionally been called the peak-earnings years and now have to navigate, what is for them, the second once-in-a-generation financial crisis.
Their concern is both warranted and understandable. Only half of the kids born in the 1980s earn as much or more than their parents. This 73-million-strong generational segment has achieved only half the net worth of their parents when they were at this stage of their lives. So, there’s serious soul-searching about spending habits, career choices, children, and housing needs, which are all orbiting around their core need — financial certainty in an economy where certainty is in short supply.
Some Context for Perspective…
Many Millennials emerged as graduates strapped with unprecedented debt.
- Mils relied more heavily on loans to finance education than previous generations.
- The initial career path was about getting bill-paying traction in the post-2008 recessionary economy.
Retirement planning is far less certain than for prior generations.
- Defined benefit pensions are less prevalent than before.
- Wealth generation through savings is hampered by historically low interest rates.
- Exposure to the stock market is lower than for Gen-Xers and Boomers. Fear of experiencing losses like Mils saw after 9/11 and the 2008 financial crisis may be limiting their investment opportunities.
Now, in the midst of the generational round-two of financial adversity, Mils are dealing with life events in the context of a global pandemic and profound economic disruption. These are typically the years for a first home purchase, first child, and career progression. Within this crisis lurks the anxiety of job loss, salary rollbacks, and new housing priorities — all hallmarks of financial insecurity. It is daunting.
Manage Your New Reality.
Building (or rebuilding) financial security starts with mindful personal finances management. There are some potentially uncomfortable measures that may be helpful in a personal finances reboot.
1. Live below your means.
- Consider relocating to a neighborhood or part of the country with lower housing costs, an option becoming more possible with a greater reliance on remote work, especially in certain professional fields.
- Do the rent vs. own analysis, including a realistic assessment of real estate appreciation. https://www.moneycrashers.com/rent-or-buy-a-house/
- Evaluate how many cars your family really needs.
- Read our articles about post-pandemic finances and managing credit card debt.
2. Realistically define financial security and success to stay focused on what you have achieved and what you need to protect.
- Don’t compare yourself to other people (college classmates, neighbors, etc.) who appear to live a more monied lifestyle.
- They may have followed the money in high-stakes professions while you followed your passion and have been rewarded in other ways.
- They may have inherited money.
3. Invest time in your financial education.
- Identify your spending and savings priorities and implement an achievable plan, perhaps with help from an objective, outside personal finance consultant — we can help there.
- Learn about money management and determine your investment risk tolerance.
- Determine if life insurance makes sense for your family and analyze different product offerings.
- See our article about additional insurance.
4. Develop financial strategies for savings.
- With savings rates expected to be low for the foreseeable future, the best use of funds (after you have built your emergency savings) is likely debt reduction rather than traditional savings.
- Take full advantage of free money from your company’s retirement plan match of your contribution.
- If you are a freelancer, you’re not eligible for unemployment insurance, so you’re under even more pressure to build at least a three- to six-month cushion.
Know that no matter what your generation, you are not alone in your financial struggles. Just as traditional pensions were replaced by DIY retirement plans (like self-directed IRA accounts), there may well be another seismic shift in retirement options to address the common needs of the Millennial generation.
So, stay informed and stay on your plan. We’re here to help should you want some support recalibrating short-term personal finances to better envision and achieve longer-term financial security.