Millennials, those born between 1982 and 2003, have overtaken Baby Boomers as the largest living age group in the US. Your average millennial’s attitudes about money couldn’t be more different than those of their generational predecessors.
Citing research conducted by The Brookings Institute and the Transamerica Center for Retirement Studies, these contrasts show that:
- Millennials are the most risk-averse generation since the Great Depression;
- A majority of millennials prefer cash over stocks and real estate for long-term investments;
- The average millennial started saving for retirement at age 22, versus 35 for Baby Boomers;
- Millennials are loaded down with student debt, but eschew credit card and mortgage debt;
- Millennials prefer saving to spending, in stark contrast to the boomers;
- 90% of millennials expect reduced or no Social Security benefits while the AARP crowd still expects annual raises.
Millennials’ investing preferences continue to draw criticism from so-called experts who argue that young people need to take more risk, not less and that long-term investments should be in stocks to beat inflation. They further argue that low interest rates will doom millennial investors to a retirement diet of pet food, and that millennials are missing the opportunity to acquire real estate with low mortgage rates.
These tidbits of conventional wisdom are all true – except when they’re not. Millennials recognize what their critics seem to be missing – the world has changed since the Baby Boomers took over.
The sheer size of the Boomer generation, with substantial help from technology and a lot of borrowing, drove an unprecedented inflationary economic expansion along with the longest bull market in history. Millennials weren’t around for that party, but they have to clean up the mess.
They’ve witnessed not one but three major stock market meltdowns; a global financial system collapse, and the Great Recession while paying double the cost (in inflation-adjusted terms) for their education than the youngest baby boomers. Boomers have long lived with a belief that long bull markets are normal, but who can blame millennials for believing the opposite? The inflation many take for granted is being replaced by deflation, which changes all the rules of investing.
Millennials as a whole are willing to earn less, doing work they love, than to be paid well and be bored. They’re content to rent rather than rush into home ownership with a hefty mortgage debt, and to use Uber instead of buying new cars.
From a financial perspective, Millennials’ financial acumen can be summed up in one word: responsible. Exactly what our economic reality requires as our leadership is handed down from the big-spending, risk-taking Baby Boomers to a less material-driven and risk-aware generation.
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.