This is a guest post from Anum Yoon who blogs at Current on Currency.
It’s no secret most Americans need to be better at handling their finances, as many people are living in debt with little savings. Being older in age, as it turns out, has little to do with how a person handles their finances. A study revealed Millennials (those under 33) are actually better equipped to make financial decisions than Gen Xers (34-54 years old), but both demographics face different challenges.
Here are some of the most telling findings from the Financial Finesse’s 2014 generational research report.
Millennials Have Their Finances in Order
During the Great Recession, Millennials were the most psychologically impacted. Many of them were searching for jobs or were recent hires when the economy began to crash. Despite coping with that massive downturn, Millennials handle their day-to-day finances better than older Gen Xers. Millennials are more likely to pay off credit cards in full, pay all their bills on time, and spend less than they make. They’re also more likely to check their credit scores on an annual basis. Their knowledge of financial aid for colleges is also impeccable.
How did Millennials, who have less financial planning experience, become so adept at this? As traumatizing as the Great Recession may have been, it forced this generation to take ownership of their finances. They had no other choice but to learn.
A Lack of Money
Although Millennials have sounder financial plans, it’s no surprise they have a lower median income than Gen Xers. Millennials are tight on cash, so retirement accounts are neglected. Sky-high student debt is part of the reason retirement isn’t a priority. Not to mention, the rate of homeownership for people under the age of 35 is at an all-time low. Managing cash flow and getting out of debt are much higher priorities.
Millennials are also the least likely to participate in an employee retirement plan out of any generation, but that could partly be attributed to not having any access to such a plan due to slashed benefits. The silver lining is Millennials are the most likely to create a DIY retirement account, such as a Roth IRA, due to their fear of Social Security and Medicare shortfalls.
Thinking Ahead
Although Millennials don’t prioritize retirement due to more pressing economic concerns, they’re still thinking long-term about maximizing their earnings potential. Ninety-one percent of the young people surveyed by Financial Finesse say they plan to leave their current job within three years. This isn’t because of a lack of loyalty. It’s because they aim high and want to earn more money.
Generation X at Risk
Although Gen Xers are better off financially than their younger counterparts, their responsibilities mean they’re more at risk of losing financial security. Gen Xers are also less savvy at making day-to-day financial decisions. This is mainly due to other commitments, as most Gen Xers are married with children. This generation is likely to make financial sacrifices for their children’s future. As expensive as colleges are now, they’re going to be even more expensive by the time their children are old enough to enroll.
Getting Better All the Time
In the past three years the survey has been conducted, Gen Xers continue to improve across the board when it comes to financial health. Since 2010, this generation is less likely to withdraw money with a penalty from their retirement accounts.
They’re more likely to have an emergency fund, and that’s what sets Gen Xers apart from Millennials. Fifty percent of Gen Xers have saved enough to cover unexpected emergencies, the survey finds. In the past several years, fewer Millennials report having an emergency fund.
Future Challenges
Signs point to the economy continuing to improve in the years after the Great Recession, but nothing is certain. Millennials have become savvier and more financially minded due to those down years, yet despite their intuition, challenges remain.
As smart as the younger generation is, they’re still making less money, more likely to be unemployed, and dealing with unprecedented levels of college debt. With the Millennials’ knowledge, they might be equipped well enough to tackle these challenges and improve their finances in the future.
Anum Yoon is personal finance blogger who started and maintains Current on Currency. You can catch her on Twitter to follow her updates.
Gen Y has been dealt much we harsher financial conditions than Gen X. They also seem better prepared to work as freelancers and not tie themselves to one employer.
I’m on the young side of Gen X and I see what you mean. The great recession, the economy and student loan debt definitely affects the mindset of millennials.
Interesting stats, Anum! I’m excited about the Gen Xers’ emergency fund statistics. Maybe all of this push for financial literacy is working!
Laurie @thefrugalfarmer recently posted…30 Great Gift Ideas for Dad
Yea, I think it might be working and that’s a good thing!
Very interesting points. It’s tough to generalize the actions of an entire generation, but there are certain things that each group can work on (Millennials need to start contributing more for retirement for example).
Syed recently posted…Diamonds in the Rough Roundup 6/5/15
I agree with that. I think the great recession and stock market crash scared many of them, and they missed out of the run up.
I’m either at the very edge of being a Gen Xer or I’m Gen Y. I think it’s the latter, though I could never quite keep track.
Like the Millennials, I struggled financially out of college. I had to go on disability. Then in my late 20s I met my husband, who had his own health problems and student debt. We didn’t get into the black until we were about 32 thanks to low income.
So we have a lot of catching up to do. Retirement is the biggest priority, and I think that’s what Millennials are really missing out on. Such a cliche, but compound interest is king. We missed out on a lot of time because we simply didn’t have the money. And some Millennials still don’t. But anyone who can spare even a few dollars each month really needs to put it in a Roth.
Hopefully, they’ll learn that before they’re too far into their 30s.
Abigail @ipickuppennies recently posted…The cost of infertility
It’s definitely tough when you’re dealing disability and a bad job market. You’re right about retirement. Compound interest really does work magic and it pays to start investing early. And another thing is that many Millennials are scared of investing in the stock market.
As someone who’s 34 (born in 1980), I never really feel like I fit in either generation. Gen Xers are old weirdos, while Millennnials play their music too loud and need to get off my lawn.
Done by Forty recently posted…Linear Assumptions are Bullshit
Haha, do you sit on a rocking chair on your porch yelling at millenials? I was born 1980 as well…though I’m 35 =) I don’t really feel like I fit in either generation either.
Now I know why we get along so well, and write such awesome blogs. We were both born in the optimal year.
Done by Forty recently posted…A Defense of Price Optimization
I think the biggest challenge for millennials is student debt, which you pointed out. I think millennials ultimately will end up contributing a higher portion of their money towards their children’s tuition because of their experience paying down student loan debt. I know I want to pay nearly all of my children’s tuition when they go to college.
DC @ Young Adult Money recently posted…Why It’s Financially Important to Avoid Tunnel Vision
From my perspective with my clients, I think my Millennials are better with their finances out of necessity more than anything else. Many of them have graduated with student loan debt, crappy jobs and limited resources so they have had to get smart about their money habits right away. Many of my Gen X’ers, despite some challenges in the job market have not had quite the struggle and don’t stress about money as much as they probably should.
Shannon @ Financially Blonde recently posted…5 Smart Money Tips for Millennials
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Have you heard of the Strauss-Howe generational theory (https://en.wikipedia.org/wiki/Strauss%E2%80%93Howe_generational_theory#Archetypes)?
Basically, this theory would say that Millenials are better with finances because we have an individual pragmatism. However, we are also “overly confident” which to me indicates that career-wise we will be surpassed by the “Artist generation” that will follow. I think many millenials are dillusional in thinking that their incomes are sure to rise in time. You have to learn to provide value, and increase your value over time.
I’m a Gen X’er, and the only thing I see missing from this is the fact that we had to look for those same jobs that millennials did during the recession, except now we were competing for jobs with younger people who would do it for cheaper. Not sure who wins in that situation. lol!
Tonya@Budget and the Beach recently posted…One Simple Move To Make You Happier
As a member of the millennial generation, I can say that this group seems to be more conservative and keenly aware of the possibility for another economic downturn. The great recession definitely had a lasting psychological impact. Across all generations there definitely seems to be a lack of overall financial accountability. I think with defined benefit retirement plans disappearing it is more important than ever for people to take responsibility for their future financial well being. The information is out there, it just takes time and diligence to research.
Dane Hinson recently posted…Why Investing is NOT Like Gambling
Coming late to this party, but wanted to chime in. Lots of interesting stuff here, though of course it applies only to broad groups of people, not necessarily individuals. We are on the young end of Gen X, and felt like we were plenty scarred by the 2008 crash, but also the 2001 tech bubble crash (which was right when we were graduating, and affected the job/housing market in CA in a big way — we had to move cross country to get jobs!). And, we have our finances completely in order, which isn’t a Gen X trait necessarily. But we also don’t have kids and are highly motivated to retire early. So that for sure changes things for us!
Our Next Life recently posted…On Potential, and Not Reaching Ours // Is Disappointment Inherent in Early Retirement?
IM a Gen Xer and I think this report is not accurate, all generations for the most part stink with money. Only a small percentage of people in each generation is doing well. Those who read PF blogs, and are savers. The rest are driving nice cars, and hanging out at the malls.
EL @ Moneywatch101 recently posted…The 3 Emergency Fund Accounts
The huge differences between Gen X and Gen Y don’t only come out in their financial issues but in all aspects of their lives. I recently read a book called “Rules of Engagement” on the topic that could help you dig even deeper. I find the biggest difference in Gen Ys thinking is the entrepreneur mindset and that what makes them better at starting a business and relying on that to create passive income instead of waiting for their retirement years.
I agree with EL from MoneyWatch. Most people doesn’t matter what generation they are in have no idea what to do with their money. It’s sad but true. But for the ones that do know how to manage their finances your post is very interesting.
CashFlowDiaries recently posted…Top 8 FREE Real Estate Investing Books
Sadly, it is true that most people have no idea what to do with their money (agree with EL too). Its our job (I mean us bloggers in personal finance) to educate them, to some extent. We need to put good and free content out there so they can learn.
Benjamin Davis @ From cents to retirement recently posted…My Sunday best
And even more sad is that many people think it’s best to put their money in expensive financial advisors’ hands!
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