Establishing a financial foothold has been anything but easy for millennials. Born between 1981 and 1996, the bulk of this age cohort was set to launch into adulthood right when the Great Recession hit 13 years ago, essentially pushing them back about 10 yards from the starting line.
While the current financial fallout from the coronavirus crisis is showing no age discrimination, it serves as a second destabilizing blow for millennials, at a young age.
A recent academic research paper finds that in 2016 (well before the coronavirus hit the global economy) the median wealth for U.S. millennials (between the ages of 20 and 35) was 25% lower than the wealth level of that age group in 2007.
Going forward, the headwinds look like they won’t exactly die down. The researchers identified eight economic disadvantages millennials face, ranging from the long-term impact of entering the workforce during a recession and the rise of contingent work that does not provide benefits, to low interest rates that would suggest lower future investment returns, for a cohort increasingly on their own to generate retirement funds.
The researchers came up with just three advantages for the millennial generation: record levels of education, longer careers given the demise of the golden retirement handshake at age 65, and greater access to health insurance through the Affordable Care Act marketplace. (That last one might merit an asterisk, as the fact is, paying for your own ACA insurance plan — the reality for contingent workers — often costs more out-of-pocket than employer-provided health insurance.)
Clearly, it’s not financially easy being a millennial. While some belly-aching is understandable and justifiable, that should be done in tandem with deciding how to make the most of a bad situation.
—Don’t regret student debt. If student loan payments are taking a chunk out of your monthly cash flow, you might be questioning whether you made the right move. The answer is likely a resounding yes.
Research dating to the late 1980s shows that income for households with a college degree has consistently remained about 100% higher than households without a degree.
The economic and career satisfaction value of a degree ages well. A Federal Reserve survey reported that barely half of college graduates under the age of 30 think the cost of the degree was worth it. Among college graduates at least 60 years old, 80% said the degree was worth it.
—Try a six-month savings experiment. When you’re juggling monthly bills on an early-career salary, it can feel daunting to also commit money for an emergency fund and save for retirement.
A few hacks can help here: Automate your savings. For an emergency fund, set up an account at an online savings bank and set up automatic deposits into that account from your checking account (it’s free.) If the online savings bank gives you the ability to assign a name to the account, consider a compelling tag that motivates you to keep at it. Mentally this can nudge you to persevere.
If you don’t have access to a workplace retirement fund, you can set up the same automated system to start saving money in an individual retirement account.
Academic research found that when people committed to saving smaller amounts more frequently, they were more successful sticking with their savings. For example, a weekly $50 deposit can be psychologically easier than one monthly deposit of $200.
Start saving with a promise that you will allow yourself a check-in at six months. If it’s too hard, you might consider scaling back what you’re earmarking for savings. But what typically happens is that after a few months, the automated deposits become a “normal” part of your financial life, and seeing a growing account value is a nice bit of motivation.
—Check your conservative bent. Not politics, but how you are investing retirement money. The millennial tendency to be too risk averse may feel safer right now, but it may imperial your long-term security.
Consider checking your long-term allocation to stocks, which over decades has historically delivered stronger inflation-beating gains than stocks or cash.
Yes, there have been two bear markets in the past 13 years. But even if you had started investing in stocks at the market high right before the financial crisis and then had your account suffer the deep 2007-2009 bear market and the recent one that began in February, you are still up 140%, compared to a gain of less than 40% if your money was parked in a short-term bond fund.
—Leverage remote work. If you have found yourself liking remote work during the coronavirus crisis, you might find your employer could be open to hearing your pitch for how operating remotely can work long-term.
If you’re in a field that lends itself to remote work, you might consider using that to your housing advantage, by moving to an area where homes are more affordable for first-time buyers.
(Article written by Carla Fried)