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Are millennials as financially screwed as everyone makes them out to be?

Here’s how the largest generation can prepare for the future

Most Canadian millennials believe that they do not make enough money to live the way they want to live, found a 2016 survey by the Environics Institute. However, the same survey also found that most millennials believe that one day — they will.

As the generation lectured for poor savings efforts and called out for spending too much on luxuries like avocado toast, it can be hard to fathom where they are finding their financial optimism.

One Reddit user explained in the thread Why millennials don’t invest in the stock market, “Between student loan debt, [a] terrible job market and ridiculously high rent in urban centres where most of the jobs are, where is this magical extra money to invest coming from?”

Despite the stereotypes and their hesitations, the data shows that there is hope for millennials and their financial futures.

To compare millennial saving and spending habits to that of Gen X, the preceding generation, we conducted a side by side comparison of census data on student loans, mortgages, and financial assets across age groups.

We chose to focus on the years 1999 and 2016 — when the oldest members of Gen X were 34 and the oldest members of millennials were 35, respectively, and even the youngest of each generation would be old enough to have entered the workforce and have real spending power.

Disheartened millennials should take note that soon, millennials will be the largest generation with spending power.

Do millennials know how to invest?

In addition to debt, a gig economy, and high rent, millennials feel overwhelmed with their investment options in this information age — a problem previous generations could have circumvented without the constant temptation to check the internet for potentially better options.

According to one participant in a study conducted by the Ontario Securities Commission, “There are so many options — it’s the paradox of choice. I find the whole thing overwhelming so I don’t like to think about it.”

However, our analysis found that total debts, total assets, principal residence, mortgage, and net worth have all doubled for millennials. There is also a growth in mutual fund investments for millennials in comparison to Gen Xers at the same age.

All assets and debts for Gen X (1999) and Millennials (2016)

Based on a comparison between overall financial assets in 1999 and 2016, it is possible that millennials feel more comfortable investing money for the long term because there were clear trends between financial assets over time in 2016 — even despite the 2008 recession.

The older someone was, the more time they have had to accumulate wealth, and therefore more financial assets. With the positive trend in 2016, millennials had the least wealth out of all age groups, but were projected to consistently earn more as they get older.

Financial assets across age groups

Gen X, by contrast, could not have that financial faith because age did not necessarily mean more wealth in 1999 and even in 2005. In those years, people who were 55 to 64 years old had fewer assets than people who were in the age groups directly below and above them. Seniors, meanwhile, were more likely to own homes and have no debt, according to a Statistics Canada analysis written in 2003.

Is all that higher education worth it?

One thing is for sure — millennials are pursuing education more than previous generations, according to research from the Royal Bank of Canada.

In our data analysis, there was a universal trend that people 35 and under had the most student loan debt, despite the year. However, millennial student debt was much higher than it was in previous years. This could be attributed to a growing demand for higher education among employers, or simply a symptom of rising costs of education.

Brent, a millennial interviewed for a McMaster University study, expressed his worry about the systemic cycle of student debt and education in the current economy.

“The student debt load is just massive. And people are going back to school because they can’t find work, so they incur more student debt. I honestly don’t know and one of my hugest [sic] fears is do we want to have kids? I was like not having kids — that was my hugest [sic] fear, are they ever going to move out of the house? Are they going to be able to? Are they going to have the opportunities to be able to do that? I have no idea where the economy in general is going to go in the next 10-20 years,” Brent said.

Notably, despite the student loans, the more education a person had, the more confident they were that they already had enough money to live their intended lifestyle — a bit more than half of the respondents in the Environics Institute survey with post graduate education felt that way.

Confidence in future security, however, remained above fifty per cent for all education levels — true to the aforementioned faith that millennials have in their ability to accumulate wealth.

According to a study by Pearson and The Harris Poll, despite growing questions around the value of college and return on investment in tuition, just 25 percent of Generation Z students say they believe they can have a rewarding career without going to college, compared to 40 percent of millennials. Meanwhile, eighty percent of Generation Z respondents and 74 percent of millennials agree that college either has a fair amount of value, is a good value, or is an excellent value. Only 20 percent of Generation Z students and 26 percent of millennials said college has ‘little value’ or ‘no value at all.

Will millennials ever be able to buy their own homes?

With all their education and financial assets, little has made as many headlines as the housing woes of millennials. Allegedly, millennials will never own a house or they will struggle to do so.

It’s often reported that millennials tend to live with their parents. Millennials overwhelmingly accept, or have resigned themselves to, the fact they will likely be renting for a longer-term until such time they can own a home. However, this does not mean they do not want to own homes.

Source: https://www.huffpost.com/entry/adult-shamed-for-living-with-his-parents-has-epic-clapback_n_5b9168d4e4b0511db3e04741 (link to cite this tweet, which has been removed from twitter)

These stereotypes came from the popularity of articles such as the avocado toast story and the soaring prices of real estate in major cities like Toronto and Vancouver.

For example, the BBC conducted a study and discovered that it would take 17,421 avocado toasts to afford a deposit on a house in Vancouver which is usually 20 percent of the total house cost. The same study states that if you ate avocado toast everyday and gave it up, then it would take you 48 years to put up a deposit for a house in Vancouver.

However, census data from 2016 shows that at 35 and under, millennials had more mortgages than Gen X did at ages 35 and under, proving that at the very least they are buying homes.

Mortgages across age groups

In fact, according to a report from Realtor.com, American millennials have begun to realize home ownership is more possible for them than they initially thought. In the United States, millennials are projected to purchase more homes than Baby Boomers and Gen X combined this year.

What’s next for millennials?

Although the financial trends as of 2012-2016 project positive growth for the financial assets of millennials, their high student loans and higher mortgages indicate that they need to be prepared if they want to ward off long term debt, especially with the unexpected interruption of COVID-19.

As Vice reported, millennials may want to focus on survival right now, before they focus on paying their student loans. All federal loans and many provincial loans are frozen right now, meaning people can take a break from paying them without accruing interest.

Bridget Casey, the founder of financial literacy site Money After Graduation, told Vice, “Many people aren’t earning any money, or much money right now. This is a time for self-preservation. Just try to survive and preserve cash.”

On the other hand, most private loans are only offering loan deferrals, rather than pauses, and Casey advises people to continue making those loan payments if possible, since a large debt will mean more interest build up.

Moneysense reporter Heather Franklin writes that paying off debt quickly is “one of the best investment decisions you can make.” Before trying to up overall assets, Franklin suggests aggressively trying to pay down debt.

“Getting rid of your debt will increase your Credit Score as well as your Credit rating—two huge benefits when it comes time to borrow money for a business or take out a mortgage on your first home,” Franklin adds.

If they play their cards right, the future might not actually be so bleak for millennials, compared to Gen X. Afterall, when Gen X reached 35, there wasn’t a strong precedent for steady financial growth. So far, millennials have been lucky to see older adults grow their assets.

It is currently still too soon to say whether COVID-19’s disruptions will affect that projection. Either millennials will take a long-term hit as younger members struggle to get their first serious jobs, or all age groups will take a hit from COVID-19 and the possibility of eventual wealth accumulation will continue albeit at a lower rate than before.