In Banking/Finance , Issue 2022 June
At this point, millennials are the biggest adult generational cohort in the world. And while the baby-boom generation may have been the largest in American history, census data shows that millennials actually surpassed boomers as the largest living generation in the United States sometime in 2019.
As the generational baton gets passed, financial advisors are spending more and more of their time with millennials and other under-50 generations, including both Generation X and Generation Z. And while some pieces of financial strategy and money management advice are eternal – the importance of diversifying your portfolio, for instance, or of having an up-to-date will – other financial factors are largely unique to these younger demographics. Here are five of them.
Historic college debt
According to consumer spending website ValuePenguin, there are 44.7 million student loan borrowers in the U.S. cumulatively shouldering $1.52 trillion in student loan debt. That equates to an average debt per borrower of $32,731, which is not only a historic high but which has also increased massively in the past decade. Since the 2015-2016 academic year alone, average debt among student loan borrowers in the U.S. has climbed 20%. Hupfer “Millennials and Gen Z, especially, carry much greater overall debt compared to other generations,” said Teressa Hupfer, a financial advisor with Edward Jones in Traverse City. “They have lower wages compared to their mortgage debt and their other consumer debt, including student loans. And that sort of thing has made them inordinately unbalanced when it comes to their income and expenses.”
College debt is such an albatross for some younger people that it upstages other financial thoughts and considerations. Brian Ursu, president and advisor at Traverse City’s Intentional Wealth Advisors, sees it as one of his top priorities to get younger clients looking at the bigger picture of their financial future.
He even wrote a book on the subject – titled “Now What? A Practical Guide to Figuring Out Your Financial Future” – that looks at paying down debt and planning for life’s milestones, from buying a house to starting a family. Ursu “I’ve encountered many millennials that feel like, ‘Well, I can’t start investing until I pay down my debt,’” Ursu said. “So, when we create a strategy on how to accelerate the payments and how to manage debt, we can really tackle that head-on and be really effective.”
Ursu says that it’s just a matter of coordinating and prioritizing the debt … but it’s also not an either/or.
“You don’t have to wait until your debt is paid off to start participating in your 401(k), or to start an investment plan,” he said. “We need to prioritize, do a little bit of both and find the right balance.”
The gig economy In Hupfer’s view, few things have reshaped the financial equation for younger generations quite like the rise of the gig economy. And while definitions about what exactly constitutes “the gig economy” can skew numbers of how many people fall into that category, there is no question that gig workers make up a significant portion of the U.S. population.
If the gig economy is just online gig sites like Uber, Postmates, Shipt, or DoorDash, the Pew Research Center has reported that some 16% of Americans have made money that way. If the gig economy entails all independent contractors, freelancers, consultants, or self-employed professionals, though, the number is much higher – approximately 55 million, per the Bureau of Labor Statistics, or 36% of American workers.
“A lot of younger people are involved in the gig economy and that causes some unique challenges,” Hupfer said. “It complicates tax scenarios for them. And they may not have the benefit of an employer-sponsored plan, so they’ve got to lean on themselves to figure out their retirement strategies.”
For those going all-in on the gig economy, Hupfer recommends going through a checklist of challenges upfront, from health insurance to retirement planning to setting aside quarterly tax payments.
On the other hand, if the gig is a “side hustle” (a worker doing in addition to their full-time job), Hupfer encourages using that money to pay down debt, start investing, or buy life insurance.
According to Investopedia, younger generations are statistically “more bullish on cryptocurrencies” than their elders. Thirty-eight percent of millennials have invested in cryptocurrency, compared to 28% of Gen X, 23% of Gen Z, and just 6% of boomers. But while crypto is popular, most financial advisors don’t recommend it – especially in the wake of a May 2022 cryptocurrency crash that, […]
In Banking/Finance , Issue 2022 June