Money trouble for millennials

Personal Finance
by Christina Darnell
Posted 2/11/16, 01:27 pm

Millennials owe a lot, but they don’t know a lot, according to a new report looking at the money habits of 20- and 30-somethings. 

The Millennials & Financial Literacy report by PricewaterhouseCoopers and George Washington University examined the personal finances of more than 5,500 young adults ages 23 to 35. Only about a fourth of millennials understand basic financial matters, like how mortgages work, the study found

“It’s very alarming to know that even over the years where states have mandated financial literacy training—at least one course before students graduate from high school—it hasn’t changed behaviors,” said Shannon Schuyler with PricewaterhouseCoopers. 

The study also found 80 percent of college-educated millennials carry at least one source of outstanding long-term debt. And they’re financially fragile. Nearly 50 percent said they wouldn’t be able to scrape together $2,000 dollars to cover an emergency if needed. Thirty percent have overdrawn bank accounts, and many are turning to “alternative financial services” such as pawnshops, payday lenders, and tax-return advances. 

“Even though about 50 percent of the millennials who are using the payday loans and using the pawnshops have not attended college, about 30 percent have,” Schuyler said. In other words, education isn’t keeping millennials from making poor financial decisions. 

And then, of course, there’s the elephant in the room: student loans. Today’s college graduate averages $35,000 in student debt. And most of them don’t know what they’re getting into. What seems like “easy money” at the beginning of college becomes a hefty monthly bill after graduation.

“The use of debt has become the assumed, unquestioned way of paying for college,” said Matt Bell of SoundMindInvesting.com. 

Fewer than half of students entering college today will graduate in four years, according to the U.S. Department of Education, and a little more than half will graduate in 6 years. The rest who don’t graduate end up with the worst of both worlds—student loans and no degree. 

“Some people are going to college who maybe shouldn’t be going to college, at least not right away,” Bell said.

What’s a cash-strapped millennial to do? Schuyler’s biggest advice is, don’t expect to live like your parents right away.

“This generation always thought they would live better than their parents, and so at the very least they want to be able to have those standards,” Schuyler said. “Well, in this day and age, those standards are costly.”

Bell suggests students find the average salaries for the careers they’re pursuing in college. Then, look at their projected student loans. What would the monthly payment be? How does that monthly payment fit in a budget four years down the road?

“I hate to be the bearer of bad news, but it really doesn’t fit in with the plan in most cases,” Bell said.

Listen to Christina Darnell’s report on money management on The World and Everything in It.

Christina Darnell
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Comments

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  • Greg Burtnett
    Posted: Fri, 04/15/2016 12:53 pm

    I consider myself, reasonably financially savvy...If 50% haven't gone to college, and only 30% have, where's the other 20%???Greg

  • JerryM
    Posted: Fri, 04/15/2016 12:53 pm

    There is very little wonder here when those in power appear to think nothing of being 19 trillion (and growing) in debt.

  • DS Gerlach
    Posted: Fri, 04/15/2016 12:53 pm

    They're just following what their parents' did.  And most colleges are grossly irresponsible when it comes to recommending student loans.  They seem to be far more concerned with enrollment numbers than they are with student well-being.  My daughter attended a prominent Christian college for one year and they thought nothing of asking her to take on $15K in debt.  It's scandalous!  

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