Millennials & Money Management

The spirited debate around the financial habits of millennials is a cauldron of mixed opinions. On the one hand, critics describe millennials as a spendthrift generation, which would rather live an unsustainably lavish life than learn the most basic money management skills. Others go so far as to say that the situation is much worse than we think.

On the other hand, pundits are of the opinion that millennials’ money management skills are not as bad as critics paint them out to be. In fact, they credit some aspects such as their spending habits for sustaining whole industries; which can either be a good thing, or not depending on how you look at it. This article gives a succinct analysis of both sides of this raging debate, and aims to dispel some of the extreme notions regarding millennials and money without delving into the financial technicalities of money management.

While we are on the topic of millennials and money, a littlebit of perspective on this fascinating group is important.Millennials are the generation that is sandwiched betweenGeneration X- the individuals born between the 60’sand 80’s- and Generation Z. Also known as Generation Y,they are individuals born roughly between 1981 and thelate 1990s. As such, they form the majority of the youngadults today. For many millennials, the conundrum doesnot begin with the vilification of their personal financialskills. Rather, it is rooted right at the very characterisationof this ill-understood generation of individuals. Oftendescribed as lazy, the older generations view millennials asindividualistic, even bordering on the narcissistic side. Withthe majority now entering the workforce, millennials appearmore materialistic, placing an emphasis on extrinsic valuessuch as money.

The Mistakes

Personal finance classes are not really a part of manyeducation systems. As such, financial literacy is not a fortefor many young adults. Once such individuals start earninga living, the lack of a foundation in the key concepts ofmanaging credit, debts, and even filing taxes clearly shows.This situation often leads millennials to make poor moneymanagement decisions. The mostcommon first mistake, which many arenever even aware of, is the lack of abudget, a proper budget. Millennialsreally value their freedom and activelyavoid anything that threatens to curtailit; and this is exactly what budgetsdo. They help an individual controltheir spending by focusing on where the money is spent. The average millennial would rather not have such a restrictive element in their life. The very thought of limiting their spending puts off even the most prudent young adults. “Why limit when there’ll

always be a source of income?” This optimistic mind-set discourages many millennials from prioritizing their money because they always believe they will earn more.

Budgeting and saving are two sides of the same coin. It is, therefore, not surprising that millennials fair just as badly, if not worse, at saving as they do at budgeting. While saving for retirement or a rainy day is one of the most prudential financial decision that an individual can make, it is not that big of a deal for millennials. If you ask the average young adult, everyday might as well be a rainy one! Granted, some of the most recent economic declines have affected this demographic. Nevertheless, this is no excuse not to save. So, just how dire is this situation? A 2018 survey by LendEDU, an online financial marketplace, showed that 27% of millennials spend more on coffee per month than they set aside in savings. In their defence, no millennial has retired yet. So how bad can it be if they actually never save? While there is a lot to learn from history, only time will tell. Another study by the Navy Federal Credit Union and Forrester Research showed that only 26% of millennials could manage money to meet their monthly financial goals. Other insights from the research as shown in the following chart:

Aptly named “living in the moment”,this imprudent characteristic definesyoung people today. They would ratherexperience life as it happens thansave or budget for whatever reason.You can blame it on popular mantrassuch as “You Only Live Once” and“Live fast and die young”. Millennialslike to think that they know exactlywhat they want and when they want it;like that sleek and expensive lookingshoe they just saw while walking downthe street! So what’s the point ofbudgeting when you know exactly whatyou want? Why would you put moneyin a savings account when you couldspend it today to have the lifestylethat you want? These questions mayseem rhetoric, but they may just pointto a generational mind-set that hasfinance professionals worried.

...this group of young, highly ambitious & skilled people has proved to be a lucrative market for debt creation

Debt

Across the globe, financial institutionsare targeting the youth with cheap andunsecured loans. Coupled with thelack of financial literacy programs, this large group of young, highly ambitious and skilled people has proved to be a lucrative market for debt creation. Financial institutions are

leveraging the lifestyle characteristics of millennials, manly the desire for excitement, extravagance and risk, to develop lucrative investment vehicles. According to research by Bentley University, many millennials getting into the workforce are already in heavy debt, particularly student debt.

In Kenya, the digital borrowing craze has become a phenomenon of its own. It is no wonder that the advancement of technology, particularly internet availability, proliferation of cheap smartphones, and reliable money transfer technology, has coincided with this problem. Together, these factors have made the access to quick and unsecured loans all too easy, and financial sector has taken note. According to SimilarWeb Limited, a

market intelligence solutions provider, there are up to 50 micro-lending mobile applications operating in the county today. With so many platforms competing against each other as well as against major financial institutions, the bar of borrowing requirements is as low as it could ever be. This means that anyone with a functioning phone number can borrow as little as Ksh.

500 to as much as Ksh 70,000 within minutes. Young adults have been especially susceptible to these loans. With limited financial knowledge and enchanting advertising taglines such as “Unlock your potential”, it has been a losing battle from the getgo. The result has been a pileup of unserviceable loans on millennials since the majority spend the money on daily expenditure.

The Good

Many critics choose not to conformto the blanket stereotype used on millennials based on the shortcomings of a few individuals. In fact, as it turns out, millennials may be one of the most prudential money managers out there. According to the Better Money Habits Millennial Report of 2018 by Bank of America, 1 in 6 U.S millennials has a minimum of $ 100,000 in total savings. The report indicates that they may even be better than, if not equal to, other generations at managing their personal finances:

Discussing the report with Fortune.com, Andrew Plepler, a manager atBank of America, said that millennialsare becoming better at managingtheir finances faster and earlier thanprevious generations. Indeed, severalstudies attest to the fact that youngadults are saving more than had beenearlier thought. However, the majoritydo not invest at all, while those whoinvest do so conservatively. Manyprefer to hold their savings in cash orlow risk investments such as bondsrather than stocks.

21st Century Reality

Many psychological andpractical aspects go into goodmoney management. While it iscommonplace to acquire such

skills through formal study, they can only be mastered through experience. It is, therefore, hypocritical to single out the perceived poor money management skills of millennials while the same could just as easily be said of any other generational demographic. Millennials, unfortunately, grew up through periods of economic uncertainty and financial instability for the better part of their lives. As they enter the workforce, these financial difficulties make it that much harder for them to save early in their careers. A study by Young Invincibles, an advocacy group, placed the income, assets, net wealth, home ownership, and retirement savings of millennials at half of what their parents where worth at the same age. Therefore, they should be afforded more time to find their level as far as personal finance is concerned.

Millennials are redefining several aspects of life-as-we-know-it, and money management is simply one of these aspects. This generation is changing the way money is traditionally earned, spent, saved, and invested. Critics should not spell doom for an entire youthful generation simply because it is rewriting the rules of personal finance. Lessons learnt from economic uncertainties experienced by millennials at an early age are no doubt the major influencing factors. As such, older generations should expect to see further profoundly sweeping changes in wealth management, not only at the personal level, but also globally in the coming years. ◊ ◊ ◊ ◊ ◊ ◊ ◊ ◊ ◊ ◊ ◊ ◊ ◊ ◊ ◊ ◊ ◊ ◊ ◊ ◊ ◊ ◊ ◊ ◊ ◊ ◊ ◊