Millennials Continue to Chase Financial Freedom
Posted By Marisa Sanfilippo on February 16, 2017 at 5:36 pm
Financial planning service SUM180’s recent Twitter polls reveal that members of both Generation Y (millennials) and Generation Z feel like they don’t have enough money. Each generation identifies building up savings as a primary goal for 2017. Millennials still hope to achieve financial freedom, but reaching that goal does not come without struggles.
Robert B. Newman, MBA, finance expert and managing partner of National Planning Corp., defines financial freedom as “your money working for you, instead of you having to work for your money.”
The poll specifically asked: What is your biggest barrier to financial freedom? Out of the 1,422 predominantly Gen Y and Gen Z respondents, 51 percent said they just don’t have enough, 21 percent said debt gets in their way, 18 percent said confusion (what’s next?), and 10 percent said ignoring their finances.
When asked, “What are your financial goals for 2017?” 1,185 respondents (also predominantly Gen Y and Gen Z) responded as follows: build up my savings, 55 percent; cut down on spending, 23 percent; pay down debt, 12 percent; and set a budget and honor it, 10 percent.
An article published by The Atlantic labels millennials as the cheapest generation citing that car sales have plummeted among this age group (from 38% in 1985 to 27% in 2010) and that the number of young people getting their first mortgage is just half what it was 10 years earlier. Many millennials have also been delaying life events that their predecessors reached earlier in life such as marriage.
“Observing these trends, many of us wondered whether a perfect storm of factors – re-urbanization, student debt, flat wages, new technologies fueling the sharing economy – would permanently re-shape the financial aspirations of this generation,” says SUM180 co-founder and CEO Carla Dearing. “Whether this is the case remains unclear. What appears to be clear, as the result of the financial freedom poll suggests, is that financial freedom continues to elude Millennials.
Is this group, in fact, worse off than previous generations? Dearing refers to a comparison using the Guardian’s income calculator for analysis. “The comparison shows that people age 20 to 24 in the U.S. are making $3,389 less than they did in 1979. However, people age 25-29 in the U.S. make about $1,274 more than people their age did in 1979. According to the data, Gen X and Boomers have an even larger income advantage over past generations,” Dearing says.
According to Dearing, directly out of school, the financial barriers young people are experiencing are real, but they recede after a few years. She believes continued barriers are more about attitude than reality.
But it’s no exaggeration to say millennials are in serious student loan debt. During the past 30 years, college tuition has doubled.
“I was 18 years old, wanting to go off to college and my parents couldn’t help. I made this mistake myself but I had no idea what I was getting into. Now I am stuck with an enormous pile of loans for a degree that, as it turns out, isn’t very useful or necessary in today’s environment,” says Matthew Delay of Florida.
“My plan for this year is to get to even keel. I am drowning every month and barely making my bills, all while working 50 to 60 hours a week. I went and got a professional designation that will yield a slightly higher income, and my goal is to have paid down 25 percent of my loans within the next 12 months and to save a three-month cushion in the same time.”
Achieving financial freedom
Is there such thing as achieving financial freedom for a generation so in debt? Anything is possible, but it requires work.
“They need to eliminate debt and then start building assets and achieve asset growth,” Newman says. “The key to financial freedom is getting into the disciplined habit of saving early and saving often. If millennials will simply follow the rule of saving at least 15 percent of their gross income, as well as living well within their means, they will have a better shot at achieving financial freedom.
- Use a spreadsheet or money-tracking app (like Mint or Quicken) to understand where money is going. Gathering the data and seeing it in one place will empower [Millennials] to better align their spending to their priorities and zero in on ways to save. The point is to learn to be mindful of where money goes.
- Jump start a savings campaign with a no-spend month. This exercise can make a big difference in your personal balance sheet. It’s simple: commit to a 30-day period of spending ONLY on necessities. Walk or bike everywhere instead of driving; take lunch to work every day; embrace free entertainment options, like exploring local parks.
- Set up automatic transfers for the beginning of the month. By doing this, money millennials have earmarked to save is transferred from a checking account to a savings account before they have a chance to spend it on something else.
In addition, millennials need to prioritize their spending and consider their far off future: retirement. Only 75 percent of Americans are actually saving for retirement when in actuality young people should start saving for retirement as soon as they began working.
*Twitter polls do not match respondents to their birth dates, but rather predict respondents’ age through other factors. Twitter reported that 75% and 70% of the respondents to these polls, respectively, were Gen Y and Gen Z.