5 numbers that are sowing new financial problems for millennials
Ask 5,500 Millennials about the state of their finances, and you’ll have 5,500 reasons to feel a little depressed about the financial security of America’s tallest generation.
This is what global tax and advisory firm PricewaterhouseCooper recently discovered when they surveyed 5,500 people aged 23 to 35 about their personal finance knowledge, their savings status, their financial status. their debt and their overall satisfaction with their financial lives. The results weren’t pretty.
In view of the relative Dilapidated state of America’s personal finances, this is not entirely surprising. But the study argues that millennials’ low savings and high debt are compounded by their low personal finance IQs – and that this, in turn, could have a domino effect on other generations.
“Millennials owe a lot. They know too little about it, ”says Annamaria Lusardi, academic director of George Washington University Global Center of Excellence in Financial Literacy, which partnered with PwC to initiate the research. Moreover, she says, “the fight against the debt of millennials could become our problem too.”
Among the many statistics regarding the study, here are five of the most disturbing:
50% of those interviewed said they could not find $ 2,000 in case of unforeseen need. A ray of hope (if you can call it that): This is quite consistent with other studies on emergency savings – like this one, or this one, or this one – therefore at least those under 35 keep pace with their compatriots faced with savings.
54% say they are are concerned about their ability to repay their student loans. In particular, this concern does not dissipate by moving up the income scale: among households with an annual income of $ 75,000 or more, 34% fear they will not be able to repay their student debt. (For the 10 things you absolutely need to know about student loans – and paying them back – Click here.)
42% have used another financial services product in the past five years. That doesn’t sound bad – until you see what PwC defines as ‘alternative financial service products’: payday loans, pawn shops, auto title loans, tax refund advances, and rental products. -sale. Given the proliferation from online lenders who find ways to offer credit products to millennials and people with limited credit records (groups that are often the same), the number of people using payday loans and pawn shops seems quite high. Then again, a recent report of
Ernst and Young
found that only 5.6% of people globally (14.1% in the US) had used an online peer-to-peer lender in the past six months. The bottom line is, perhaps, new online lenders still have large chunks of the market that they haven’t yet tapped into.
36% have a retirement account. While this correlates quite closely with the proportion of American workers who are automatically enrolled in a workplace savings account, that 36% looks worse when it appears next to the answers people gave to PwC’s other retirement-related questions. Questions that produced answers like …
14% have made a hardship withdrawal from their retirement accounts in the past twelve months. Another 17% took out a 401k loan during the same period. (Note that the two are not the same: by definition, a 401k loan is something you pay back. Funds withdrawn from a 401k in hardship – the definition of which is determined by each pension plan – you cannot put them back in.) Looting a retirement account is not generally a good idea, and starting to do so at a relatively young age could mean developing a bad habit that could torment you for life and erode your most valuable savings: the money that has the most time to accumulate.
The PwC study concludes with this disturbing note: “The financial practices of millennials are of concern because of the possibility that these behaviors are becoming firmly established. Indeed, research has shown that the gap between the amount of financial responsibility given to young Americans and their demonstrated ability to manage financial decisions is widening rapidly. In addition, their knowledge deficit could prove disastrous for them, the economy and society. “
It’s one way of looking at it. The other way to look at it is this: Millennials are young. With the exception of Generation Z (aka “The founders, “if it’s been a while since you’ve had a good look), they have more time than anyone else to make up for their bad personal finance habits. And they’re going to get a little help, too: the Consumer Financial Protection Bureau recently released guidelines to improve financial education, and employers are increasingly realizing that financial well-being is a key benefit for employees – and, therefore, offer tools which allow employees to increase their savings or repay their debt.
Plus, there are other polls that show that when millennials have the resources to make the right financial decisions, they do. This means that for many young adults, the road to financial security may be much shorter than they currently think.
“When millennials have the means to do what’s right, it seems like they do it a lot,” said T. Rowe Price, Senior Director Anne Coveney told me last year. “They show financial discipline in managing their spending and challenge stereotypes that this generation is inclined to spend and think short-sighted.”
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