Why Millennials Are Having Trouble Saving
Millennials, the generation born between 1981 and 1996, are facing unique financial challenges that make saving money difficult. This article will explore the key reasons why many millennials struggle to build savings.
High Costs of Education
One major factor impacting millennials’ ability to save is the burden of student loan debt. Compared to previous generations, millennials have much higher levels of student debt. The average student debt balance for millennials is over $30,000.With such large debt balances right out of school, it can be incredibly difficult for millennials to also focus on saving money. A large portion of millennial income goes towards paying off interest and principal on student loans every month. This debt service constraint leaves less money available to contribute to retirement accounts, emergency funds, or other savings vehicles.
-Challenging Job Market
Millennials also came of age and entered the workforce during the Great Recession. The difficult job market meant finding stable, decent paying work was harder for millennials.Research shows that millennials who graduated during a poor economy made less money over the next decade compared to those who graduated in better economies. Lower incomes over a long period obviously make building savings very difficult.Even today, real wage growth has been stagnant. Costs for things like housing, healthcare, and education have risen much faster than incomes over the past 20 years. This economic reality makes saving extra challenging.
Lifestyle Creep
Another factor impacting millennials’ savings is lifestyle inflation. While incomes have not risen significantly, millennials appear more prone to increasing their lifestyle expenses whenever they get a raise or a better paying job.This lifestyle creep means consumption grows as incomes rise, limiting the potential for additional savings. Common lifestyle creep expenses include dining out, vacations, entertainment, luxury goods, larger homes and apartments, and more expensive vehicles. Avoiding lifestyle inflation takes discipline and separating needs from wants.
Economic Uncertainty
Millennials also report higher levels of anxiety around their long-term economic prospects. Many worry about things like automation taking jobs, economic collapse, runaway inflation, or another financial crisis decimating their savings.This sense of uncertainty likely deters additional savings and encourages consumption in the moment out of fear savings could be wiped out anyway. Having lived through multiple economic crises so early in their careers has made millennials more skeptical about the future.
Difficulty Delaying Gratification
Behavioral economics research indicates that millennials tend to be more focused on short-term happiness and less willing to delay gratification. For example, a majority of millennials would prefer to spend money rather than save an equivalent amount for retirement.This mindset and lack of delayed gratification instinct makes consistently saving money month-after-month more challenging. Immediate consumption is prioritized over saving for the future.
-Failure of Financial Education
Finally, a lack of quality personal finance education has put millennials behind on understanding saving and investing. Most millennials report getting little helpful education around managing money, building credit, or investing.Without this basic financial literacy, it is not surprising that millennials struggle to save. They were never taught financial skills like budgeting, goal setting, controlling expenses, or putting money to work in the market. It makes it much harder to execute positive saving habits.The unique economic context and institutional failures around financial education have clearly made it harder for millennials to build wealth through disciplined saving. By recognizing these challenges however, millennials can adapt financial strategies and demonstrate more resilience going forward. The key is focusing on the saving basics and staying committed despite economic uncertainty.
Tips for Improving Savings Rates
While the deck seems stacked against millennials in some ways, there remains much that millennials can do to improve savings habits and build wealth over time. Here are 5 recommendations for how millennials can save more money:Automate Saving – Set up automatic transfers from checking accounts or paychecks into various savings accounts like emergency funds or Roth IRAs. This automated saving helps avoid temptation and makes saving effortless over time.Pay Off Debt – Accelerating payments on debt helps cash flow and allows more money to be redirected towards saving. Come up with a debt payoff strategy that makes financial sense.Budget Strictly – Create a reasonable budget that aligns expenses with income and allows for saving 15-20% of income. Having a budget roadmap supports saving.Save Incrementally – Get into the habit of saving small amounts consistently, even if you cannot save a large amount all at once. Incremental saving adds up.Invest Wisely – Learn basic investing principles and use retirement accounts like 401(k)s and Roth IRAs to put savings to work in the market. Invested savings grow much quicker than cash.
Looking Ahead with Optimism
While this article outlines plenty of current economic challenges facing millennials, there remains reason for optimism about the future. Millennials are the most educated, tech savvy generation ever. Millennials are starting businesses at higher rates, innovating new technologies, pushing for social change, and still have long runways for wealth building.By adopting behaviors like budgeting, smart debt usage, consistent saving habits and investing, millennials can still thrive financially. Their economic destiny remains largely in their hands. Early adoption of positive financial habits can lay the foundation for improving money outcomes.The key is proactively taking control of finances, having an intentional plan for saving, thinking long-term, and not dwelling on short-term economic instability or past mistakes. Millennials face genuine obstacles around saving, but also have the tools and time to overcome them.