How Millennial Financial Planning Differs from Other Generations
Personal financial strategies tend to shift with each generation, especially as the economy and job market changes and new savings tools are introduced. Millennials (Generation Y), in particular, have faced challenges that have caused them to develop their own set of spending and saving habits. They may need to carry more student loan debt and adjust to new homebuying standards, but in general, they have begun to save earlier in life. And this will help them meet their long-term millennial financial planning goals.
How Millennials Save
Millennials are savers and they've established good financial habits at a younger age than previous generations. According to a recent survey from Discover, 81 percent of millennials are saving part of their income and 35 percent claimed to have increased their savings over the prior year. Another survey by Transamerica, that focuses on retirement savings, reports that millennials claim to have started saving for retirement earlier than previous generations — at a median age of 24, compared to 30 for Generation X and 35 for baby boomers. It was also noted that Gen Y are more likely to utilize a professional financial advisor for assistance with investment strategies.
According to the Pew Research Center, millennials are better educated than previous generations and they tend to get married or set up a household at a later age. A study by the Urban Institute found that waiting longer to get married also affected millennial homeownership rates compared to previous generations.
Gen Y also has spending habits that differ from older generations. This affects their personal finances and how they choose to shop. They tend to be highly tech-reliant and more likely to purchase wearable technology like smartwatches. They've grown up in a new era of digital technology and feel more comfortable paying for items with their smartphones.
The Pew Research Center study found that Gen Y has accumulated less wealth than previous generations had acquired at the same average age. Part of the reason for this was student loan debt. Because millennials are carrying a higher balance in student loans than previous generations, they may find it more of a challenge to get ahead financially and move into homeownership. Learning how to manage student debt has been part of the evolution of millennial financial planning, an added line item to their household budget that previous generations have not had to deal with on such a large scale.
Caregiving at a Younger Age
Although the younger generation tends to establish their own households later in life, they are increasingly becoming caregivers to older generations. According to a survey by the AARP Public Policy Institute, Gen Y make up about 25 percent of family caregivers. This increased responsibility is coming earlier in life and adding to millennials' financial burdens when they're forced to pay for the care of a parent or grandparent. Although adequate support may not yet be in place to assist millennials with caregiving, the identification of this issue will help lay the groundwork for the future.
Caregiving, student loans, and a more tech-reliant lifestyle are just a few of the many factors that affect millennial financial planning. Despite these challenges, Gen Y has demonstrated resiliency and established good spending and savings habits to help them achieve long-term success.