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Millennials and Money

Millennials distrust financial institutions and, in general, know little about personal finance. Are the two related?

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On the first day of my summer internship, our intern coordinator asked us to bring in a voided check in order to route money to our bank accounts.

“Voided check? What does that mean?” asked a fellow intern.

“You know, it’s a check that has ‘VOID’ written in big letters across the top,” replied another summer hire. I glanced nervously to my left, and then my right. It was clear that none of us had a checkbook with us, let alone knew how to balance one.

“Could you just Venmo me?” muttered one intern under his breath.

***

Many of the Millennials I know are afraid of managing their personal finances. While a few know the difference between stocks and bonds, only a select percentage know how to invest their income in those stocks and bonds. Millennials were born into a highly unstable economy, and perhaps because of that, do not prioritize personal finance. While websites like Learn Lux and Broke Millennial work to improve our generation’s financial literacy, a 2012 study conducted by the National Endowment for Financial Education showed that only 24 percent of Millennials demonstrated a basic understanding of how to manage their money.

I spoke with Annamaria Lusardi, professor of Economics and Accountancy at George Washington University. “When we look at Millennials, we see a lot of signs of financial distress. They’re dealing with a more difficult labor market, and have to make more decisions than the previous generation. Millennials are the most educated generation, the most technologically advanced, yet they don’t seem to have the skills necessary to navigate the economic landscape. They’re struggling.”

Why are Millennials wary of tackling personal finance? Why is the struggle so real? According to Lusardi, it’s a lack of trust in the market. “Young people are entering an economic system when we see a huge financial crisis with huge financial implications,” she told me. “Finance is built on trust, and if young people do not have that trust in the system, it is a disadvantage for them—and the system, too.”

When Millennials believe the larger world of finance is broken, it’s hard to make the argument that we should invest time and energy in our personal finances. We avoid the subject because there’s a certain inevitability around it; a feeling that larger forces at work will ruin our chances of financial security. Why even try?

A brief published by Generation Progress in October 2016 shows that Millennials crave economic stability and opportunity. But 23 percent of Millennials think they are “falling behind” economically, while 64 percent think they are “getting by.” A mere 13 percent believe they are “getting ahead” economically. Clearly, our generation is still feeling the slow burn of the Great Recession, paying for that collapse in missed investments, vanished trust, and lingering questions about the stability of our financial future.

***

I asked my fellow intern Tony if he knew the difference between a stock and a bond. “Absolutely not,” he responded. “We didn’t learn about that in Econ 101.” Tony wants to improve his financial literacy, and like a lot of Millennials, said he would turn to the internet as a resource first.

“Spend a little bit of time educating yourself,” advises Lusardi. “It’s my personal recommendation. It could be as little as ten minutes a week.” She likes to compare financial literacy to having a driver’s license. Traffic rules are complex, and if we do something wrong, we can hurt ourselves. “Finance is like that: We need people to know a little bit before we put them behind the wheel.”

One person I know, however, works hard to break the stereotype of the financially-illiterate Millennial. Jennifer Mace, a 20-year-old junior at Claremont McKenna College, works as a Summer Analyst at a large financial firm in Boston. Mace works in the Private Wealth Management division. When I asked how she feels about her own finances, she answered modestly. “I feel under control because I’m not a big spender. I prioritize saving over spending, and when I do spend, I like to invest in purchases. I spent, like, $200 on Beats headphones, but only because I know they will last for a long time.”

As an economics major, Mace makes a point to stay on top of financial news. In addition to reading The Economist and the Wall Street Journal, she subscribes to a number of daily newsletters, like Bloomberg and Morning Brew Daily. When asked if she keeps a budget while in Boston, she said she had just started tracking her expenses in an excel spreadsheet. “It’s fairly simple at the moment, just broken into categories like rent, groceries, transportation costs, and eating out… oh, and exercise classes.” Mace hasn’t set a limit on her spending yet. “I want to see how the first week goes,” she laughed. Her advice to Millennials on a budget? “Definitely be aware whenever you’re spending money. With credit cards, and Venmo, you don’t have to be conscious of how much you’re spending on things. It’s good to write it down, keep track of it on an app or spreadsheet, just to have that reminder. With credit cards, it’s really easy to spend money you don’t have. This probably goes without saying, but only spend what you have,” she said.

Mace uses other tactics to help her track her money, too. She uses her checking account exclusively for meals and occasional purchases, while her paychecks go directly into her savings account. That way, she has to move money from savings to checking if she wants to use it. (“It’s another step that makes you stop and think before you spend, Jennifer told me.”) Not everything in Mace’s financial life is serious, however: she introduced me to StockWars, a virtual investing app that she uses. “It’s all fake money that you invest in equity, just for practice and fun. You get ranked against other players so you can see how you’re doing,” she tells me. Mace also uses an online banking app, though she is sure to meticulously copy down the exact amount of her statements on paper—just in case.

With Millennial finance, Mace’s experience is the exception rather than the rule. While at Claremont McKenna College, she has worked hard to distinguish herself academically in a competitive class of economics majors. Nearly all of my Millennial friends have knowledge similar to Tony’s rather than Jennifer’s. One thing that unites both Jennifer and Tony? Tech.

Around 87 percent of Millennials use online banking apps or websites to deposit checks, move money from one account to another, and check their balances. This mix of technology and finance has vast, if unknown, implications for the future of personal finance. Lusardi thinks that the blend of tech and finance presents both great opportunity, and great danger. “Now, you can make a transaction by pushing a button. But technology alone is not enough: we need to marry tech with financial literacy. Otherwise, we should prepare ourselves for the next financial crisis.”

Student debt also haunts Millennials, contributing to our fear of personal finance. Debt not only makes it difficult to open a credit card, or put money down on an apartment, but has solidified our generation’s belief that we will never be financially secure. According to the brief by Generation Progress, the majority of our debt comes from our pursuit of higher education. The same brief claimed that the average debt for 2015 college grads was more than $35,000 per borrower.

“I was shocked when we studied student debt,” Lusardi told me, referring to her research as the Academic Director of the Global Financial Literacy Excellence Center (GFLEC). “We ask people to make decisions about these loans when they are so young, with so little information.” There were two statistics that stood out in her findings: nearly half of Millennials (defined as those 18 to 34 in her research) owe at least one loan, and 53 percent of student-loan holders say that if they could go back in time, they would do something differently.

“You say the word ‘debt’ and it’s connected with worry and alarm. It’s not just a problem for the young, but a problem for the whole economy. Not many student borrowers have done the calculations. 1.4 trillion dollars—in the hands of young people—who don’t know about interest and interest compounding!” she exclaimed. “I don’t know why we aren’t more worried about this problem.”

Lusardi, however, sees an upside to the student debt that Millennials face. “Think of it as not only a burden, but also an opportunity,” she said. “A college education is still the best investment a young person can make. Debt should be an incentive to think more about the college you choose, how much to borrow, where to borrow it from, and how to take advantage of opportunities while in college. Stay financially savvy.”

According to a report published by GFLEC, we Millennials confront greater economic difficulties than previous generations. The report lists a number of trends on how we handle our finances: In addition to having inadequate financial knowledge and worrying about student loans, we don’t seek professional help and are “financially fragile”—meaning that nearly 30 percent of Millennials are overdrawing on their checking accounts, and 50 percent don’t believe they could come up with $2,000 in an emergency. Only 36 percent of Millennials have a retirement account, and of that population, 17 percent took a loan and 14 percent took a hardship withdrawal in the past year. The fact is, Millennials have been sacrificing our already limited retirement accounts out of necessity.

I decided to attend a financial empowerment event for interns hosted by Jewish Women International (JWI). Deborah Rosenbloom, JWI’s Vice President of Programs and New Initiatives, hosted the hour-long workshop. “Even if you don’t have a lot of money now, you have time on your side. Use that time to make smart financial decisions that will make that money grow.” Her advice to those seeking economic security? “Be good to your future self.” Save this decade so you can spend in the coming ones. Of course, it’s hard to think of our future selves when we have to make rent and student loan payments. The problem is not that Millennials are lazy, entitled, live-in-the-moment financial illiterates. The problem is that we feel our personal finances are going to be bad no matter what we do, no matter how hard we try to educate ourselves.

How do we help Millennials trust the financial system again–or rather, should we? In the long term, we need to build a financial system worth trusting. But until that happens, we must expand access to financial education to give Millennials power over the finances they can control. We need financial literacy to start in schools from a young age, so that we can make informed decisions about our financial futures. Lusardi recommends providing people with physical places to go when they have financial questions. “When you’re pregnant, you know to go to the hospital. We know where to go for health coverage, and we should try to do the same for finances. Set up a source of independent, reliable information.” Until these locations are set up, however, Lusardi suggests websites designed to inform the average consumer: the National Endowment for Financial Education (NEFE), Mymoney.gov, and the Consumer Financial Protection Bureau (CFPB).

“Financial stuff is constantly changing,” says Mace. “Any announcement can alter the market, so be aware. Our generation is constantly on some form of media, so it shouldn’t be too difficult. It’s like the way you should know what’s happening with government and politics.”

And what, I ask Lusardi, would you say to a Millennial who is hesitant about tackling their personal finances? “You don’t have a choice,” she said decisively. “You live in this world, and this world is yours to conquer. Do you want to be happy? Financially secure? If you do, you have to be financially literate.”

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