By Evan Eberly, Associate Wealth Advisor
2019 marked the year that millennials took stage as the largest generation: 73 million to the Baby Boomers’ 72 million. My age group then, those born between 1981 and 1996, now make up the primary wealth-building and tax-paying part of the population. This includes everyone from parents of middle-schoolers on one end to recent college grads on the other.
As a financial advisor early in my career, as well as a new homeowner and father-to-be, I’m often asked if I have just a few points of advice for my peers starting on their wealth journey. I’m 28, over the initial blush of that first job out of college and into building wealth and finding my voice as an investor.
There are a few specific challenges, and therefore specific solutions, that I see millennials facing. Let’s imagine a conversation I might have with this hypothetical 20- or 30-something, and look at some financial advice for millennials.
Today’s Money is Worth More than Tomorrow’s
It’s an irritating bit of dogma for each generation to say that the next one is off to hell in a handbasket. “Young people these days” is a threadbare cliche, reused every couple of decades. Millennial spending and saving habits aren’t all bad news, but there are places we could trim.
Just a glance at some of our temporary spending habits shows the trend. In a recent survey, 79% of us said we pay to eat out, as opposed to 66% of Gen Xers and 56% of Boomers. Other habits, like that $4 cup of coffee (daily if not more), can hurt us financially in the long run.
And the long run is the issue. Millennials, remember: Today’s money is worth more than tomorrow’s money. We have a tendency to spend today’s money and leave tomorrow’s planning to tomorrow. These small details of weekday restaurant trips and extra-whip caramel macchiatos point to this deeper trend of short-term thinking.
The math is simple. If a 25-year-old started investing $1,000 a year and accrued 7% interest, by the time they reached retirement age (67 right now), $246,776.50 would be waiting for them. That’s $42,000 deposited growing to more than five times its value.
If you wait until you’re 45 to start putting away a grand a year in the same circumstances, then the resulting $52,436.14 at retirement won’t last long.
Inflation will also constantly nibble away at savings, which makes it all the more imperative to start saving now.
Pay Yourself Now, Not Latte
That daily expensive coffee can easily turn into thrice-weekly visits to your favorite restaurant and a quarterly vacation to someplace warm. A recent poll showed millennials taking 35 vacation days a year, by far the highest generation. Add to this the cultural pressure of social media – YOLO and FOMO – and that’s a lot of money on flights and lattes in other countries.
Again, this points to a short-term-thinking trend. I have friends who think of their 401(k) as their only savings vehicle and the rest of their income (minus rent if they don’t live with mom and dad!) as pocket money. The long-term consequences of this are too obvious to mention, but there are a few strategies we can put in place right away.
Max the Match
Your employer most likely has some kind of 401(k) matching program in place. Take advantage of it now. Ask your Boomer parents and your Gen X older cousins: To skimp on 401(k) matching is to leave free money on the table.
It’s common to see a 4% match, although some companies might go even higher. Let this investment leave your paycheck before you have a chance to change your mind.
You want your 401(k) contributions automated if they aren’t already. Only look at them when you’re going in to increase them. I’d go a step further and automate a certain monthly amount to other savings/investments.
Banks have made this even easier tech-wise, and you can leverage these advances to outsmart yourself a little. If you never see the money, you won’t miss it. After you’ve maxed out your 401(k) match, set it up so every time you deposit your check, a certain percentage goes into a growth-focused account in which a certain percentage is invested into stocks, bonds, or ETFs. It doesn’t have to be much to grow over time.
Own that Student Loan
This may be a recent memory for you: The six-month-after-college grace period is up. The first student loan bill arrives. You probably wanted to drink something stronger than a latte when you saw it! The student loan crisis isn’t news to anyone, with recent estimates at over $1.5 trillion, most of that held by millennials.
Keep Your Head About You
Debt feels awful, especially because this is usually the first larger debt you’ll ever incur. But wait out that initial discomfort to see that you do have options.
If you can’t afford the full payment right away, there are ways to defer or lessen your payments until you have more income. This will change the lifespan and overall total of your loan, so keep that in mind.
Also, be aware that your student loan has one of the lower rates of interest out of your debts. As I write this, the average interest rate for student loans is 4.79%. Your car loan probably has a higher interest rate, and a 30-year mortgage will only be slightly lower. Credit card debt is the highest interest rate hands down, so pay those off right away. But your student debt is relatively slow-growing.
The Life-Span of Your Loan
A larger student loan may be your companion for some time. That’s when creative engagement is important. There’s no shortage of offers to refinance (check your spam folder), and income-sensitive repayment plans can help ease the burden. Student loan forgiveness is also an option, especially in service jobs like teaching in a depressed area.
On the other hand, if your debt is lower (under $20,000 or so), it might be best to pay that off and get it out of the way. Especially if you’re living with mom and dad, as many of us did straight out of school, and have fewer other expenses. Your student debt may grow slowly, but no growth is best, and there will be plenty of other debt “opportunities” waiting for you in adult life – trust me!
The World We Were Born Into
Despite negative media portrayal and a host of critical voices, I have a lot of hope for our generation. We are showing ingenuity and ownership, stepping up to the plate as the inheritors of the current world. Millennial, and billionaire co-founder of Snapchat, Evan Spiegel, said it this way: “The Millennial Generation. The ‘Me’ Generation. Well, it’s true. We do have a sense of entitlement, a sense of ownership, because, after all, this is the world we were born into, and we are responsible for it.”
Now is the time for us to not only embrace the future but to plan for it. Mom and dad are retiring and will have their own expenses, and the bill for the world will fall in front of us shortly. This financial advice for millennials will get you started, but my best tip is to talk with a money professional who can speak to your particular situation and help you think big picture.
Connect with a financial advisor who can help you find your own path to success, and help you start on tomorrow, today. It’s our time!