The Secret of Successful Millennials? – Low Debt


Who are Millennials?

millennialsThere have been many surveys of this age group, perhaps the best know is the 2014 Wells Fargo Millenial Study.    The Millennial Next Door Project (MNDP) takes a different approach and looks at the things that this age group is doing that has made a positive impact on their financial wellbeing. In this study, MNDP Millennials who are successful feel satisfied with their current lifestyle, are between the ages of 25 and 34, earn between $25,000-$75,000, work at either a small or large company and have between $10k-$50k in assets outside of their primary residence, and have very little debt. The differences between these two studies are glaring and highlight the crippling effect debt and the gender income gap can have on not only one’s financial health but one’s personal outlook for their future.

 

So what are successful millennials doing that others in their age group are not doing?

 

Successful Millennials Believe They are Financially Literate

It is interesting to note that 1 in 4 millennials “trust no one for financial advice” and half report receiving little to no financial advice from their parents.  So where are they getting their financial advice then?    According to the Wells Fargo Study 57% said “family”, 54% said financial institutions, and 50% said “personal finance experts/personalities”.  Clearly there are mixed signals here and even though millennials believe they are financially literate, the information they are getting may not be sound financial advice.  Here is a great resource to test your financial literacy put together by the FINRA Investor Education Foundation.

 

Successful Millennials Set Financial Goals

Setting goals is key to the success of any business and the same can be said for individuals. MNDP Millennials set financial goals and are on track to meet those goals.  Roughly half have saved enough to fund living expenses for 3 months or more in the event of job loss and 34% have calculated how much money they will need to fund a comfortable retirement.

 

 

Successful Millennials Budget for Expenses

Millennial Next DoorOne of the findings of the MNDP Study is that 85% of successful millennials budget for their expenses and 90% spend less than they earn, at least some of the time. Another issue uncovered in this study is that successful millennials are far less likely to buy on impulse or use credit card debt to make unplanned purchases. 


Successful Millennials are Serious About Saving and Investing

 

Millennials are also engaged when it comes to saving and investing.  Successful millennials save on average 21% of what they earn for home purchase/refinance, starting a family, or to fund a child's education.  Surprisingly this group has a conservative investment mix of 44% cash & equivalents, 38% equities, 9% fixed income, and 9% other. A staggering 71% make their own investment decisions while 35% consult with friends and family before making investment decisions and 21% rely on advice from investment professionals.

 

Successful Millennials Have Low Debt to Income

Ultimately it is debt that distinguishes successful millennials from others in their age group. It appears that successful millennials have low student debt as compared with other millennials.  Roughly 60% have less than $15,000 in debt and this is primarily due to the fact that nearly a quarter of successful millennials paid nothing towards their college degree.  Other millennials are burdened with high student loan debt of over $29,000 on average according to the most recent Project on Student Debt report from the Institute for College Access and Success.  Total student debt has topped $1.2 trillion and 71% of college seniors graduate with student debt up from less than half of graduates in 1994. The Wells Fargo Study revealed that 42 percent of millennials feel that debt is there biggest concern and 56% are living “paycheck to paycheck”.  What is interesting is that when asked to break down categories of debt, Millennials spend on average more on credit card debt than mortgage or student loan debt.  In fact, 47% in this age group spend 50 percent or more of their monthly income on debt. Does this suggest that the Millennial lifestyle is being financed by credit card debt and that Millennials rationalize credit card purchases because they place value on the purchases over other types of debt?

 

 

What Can We Learn From Successful Millennials?

The biggest regret of Millennials is taking on too much credit card debt and impulsive spending.  When asked what was the best financial advice they ever received millennials responded: “start saving at an early age”, “don't spend money you don't have”, and “live below your means”.

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