Special to the Financial Independence Hub
There is some truth and some fiction to the idea that millennials are not responsible with their finances. On the one hand, today’s youth is particularly adept at saving money and meeting their financial responsibilities on a monthly basis. However, millennials appear to have less foresight, as they’re not as interested in planning for their financial future as Generation Xers and Baby Boomers were.
The most important element of a paycheck for millennials is the financial freedom it offers them. A study by Bank of America and Merrill Edge discovered that this generation is better at saving money compared to other generations, but what they choose to spend this money on differs greatly from older workers.
This same study discovered that 63% of millennials value financial freedom above all, meaning they set aside a certain amount of money to continue living their lifestyle of choice. This means planning for social trips or vacations, eating out at fancy brunch restaurants on Sundays and using Uber as one of their primary forms of transportation.
A survey by BMO Wealth Management found that 26% of millennials — ages 18 to 34 — believe “saving more” is their most important priority with finances. A further 25% value reducing and eliminating debt at the top of their list, while 20% want to invest effectively, 17% focus on budgeting and 5% believe in spending on personal needs or goals above all. All in all, millennials are reinventing the wheel in regards to where their finances should go, but they might pay the price moving forward.
Disregard for retirement
A chunk of today’s youth has yet to begin planning for retirement, as they’re not thinking about what their needs will be in the future. Some believe Social Security (or in Canada CPP/OAS) will get them through their golden years, which only nets the average retiree about $1,300 per month nowadays. Others buy into the carpe diem or YOLO mentality that’s been instilled within millennials.
The Merrill study reported that 81% of millennials spend their money on traveling. Eating out and investing in gym memberships are other activities that millennials would rather spend on before saving retirement. Part of the reason for this mentality may be overconfidence: A Franklin Templeton survey found 47% of millennials believe they’ll reach their retirement goals.
The problem with having this confidence is that you never know what the economy will look like in the future. Many of these millennials’ parents suffered the full brunt of the 2008 housing crisis that made getting by their daily life a more pressing issue than retirement, forcing them to slow down on saving for retirement moving forward.
Lack of financial literacy
Enrolling in a company’s 401(k) or group RRSP can go a long way, as some companies match their workers’ retirement contributions. But many millennials don’t realize this. IRAs and Roth IRAs (or RRSPs and TFSAs in Canada) are also very effective ways to save for retirement as contributing to these funds offer tax breaks that can accrue over time.
Most high schools and higher education institutions don’t require students to take courses on how to manage their finances. In fact, many schools don’t even have courses that teach students how to get the most bang out of their buck.
The bottom line
Millennials should ask their parents or perhaps even consider hiring a financial planner to help them develop proper budgeting techniques, as well as what retirement plan works best for their income bracket. Additionally, learning how to manage debt by paying every month’s interests helps keep these bills in check. Applying these skills can go a long way toward relieving financial anxiety.
Gabby Revel is a freelance writer and editor with over 10 years experience writing about personal finance, beauty and fashion, and other lifestyle topics. When she’s not writing, Gabby likes traveling and exploring the world. And she loves cats.