Millennials have been hit hard by the Great Recession, and a recent Wells Fargo study shows just how hard they have been hit. The survey, which consisted of 1,639 men and women between 22 and 33 years old, found that 47% of millennials devote at least half of their paycheck to paying off debt and that 56% consider themselves to be living paycheck to paycheck.
In some respects, this is not too surprising – especially with increased attendance and rapidly rising costs at colleges, fewer jobs for recent graduates, and relatively stagnant wages affecting those who are currently employed. However, income is only half of the equation – spending is the other.
Respondents were asked to estimate the percentage of their monthly debt payments that fell into several categories. Leading the list at 16% was credit card debt. Mortgage debt followed close behind at 15%, with student loans at 12%. Other major categories were car payments at 9%, and medical debt at 5%.
Credit card usage is fine if managed responsibly and paid off in full at the end of the month, but carrying a monthly credit card balance is a particularly damaging form of debt. It is typically high interest and provides no equity value like a mortgage, and it tends to snowball through continuation of bad spending habits.
On the positive side, at least millennials recognize this concern. When asked to give advice to recent graduates starting their careers, the top two pieces of advice were, "Don't spend more than you earn" at 33%, with "Get educated about your personal finances" in second place at 17%.
Unfortunately, understanding is not necessarily translating into action. 80% of respondents said the Great Recession in 2008 taught them that they had to save now to "survive" future economic problems, yet only 55% are saving for retirement.
However, there is a significant gender component running throughout the survey.
Median household income was reported as $77,000 for men versus $56,000 for women ($83,000 vs. $63,000 for college-educated respondents), and this effect of women's lesser income ripples through all responses.
Regarding satisfaction with their current savings, 58% of male respondents were satisfied, but only 41% of women were. 45% of women feel overwhelmed by debt, compared to 33% of men. Investable assets for college-educated millennials had median values of $58,500 for men and $31,400 for women.
Savings percentages back up the gender discrepancy. 53% of the women saved between 1-5% of income, around 33% save between 6-10% and only 9% of the women save more than 10% of their income. For men, 39% saved between 1-5% of income, around 33% saved between 5-10% and 26% saved at a rate higher than 10%. Men are making more; therefore, they can afford to save a higher percentage.
Despite these gloomy results, millennials are retaining their optimism. 70% feel better off financially than their peers, 84% believe they have the career skills to succeed in their 40s, and 76% of college-educated millennials believe their degrees were worth the cost.
Overall, millennials seem to have the recognition and the understanding of the importance of saving and financial planning, and the majority of them have confidence that things will eventually get better. The key, as it is with every generation, will be to learn how to control and prioritize their spending to have funds available to save and invest. If they can manage spending responsibly — and participate in tax-advantaged saving vehicles like 401(k) and IRA plans — millennials can look forward to a bright financial future.
Want to learn more about successful millennials and their habits? Download your free copy of the eBook, “The Millennial Next Door [Revealed]: How to be Financially Successful in Your 20's.”