Hi, I'm Kevin. I write a free newsletter about money for 904 other Millennial parents. We talk about how to turn your money into memories.
On nice weather days after school, my family and I often like to play soccer on a public field near our house.
The field is popular, though. At the very least, the neighborhood school across the street uses the field for recess and other activities. So my kids often find that we need to head to a backup option.
On some mornings, my five-year-old will ask whether I think the field will be open later that day.
I never actually know for sure. But I try to make an educated guess based on the time of year, day of the week, and weather forecast. Even when I’m wrong, we both find value in mentally preparing for different scenarios.
Welcome back to Financially Well, the finance podcast for Millennials.
I occasionally find myself in a similar situation when I think about money, particularly the financial decisions that Millennials make. This has become increasingly true as the long-time narratives about Millennials have turned stale. We’re now in different stages of our careers, with our families, and in our personal lives.
I certainly can’t claim to know what Millennial financial decisions will look like in the years ahead. But we can already see how the ways in which Millennials think about money differ from previous generations. And using the information that we do have available to us, we can make an educated guess about why these thoughts often must differ.
The “Great Recession” that started in 2007 seemed to highlight that Millennials face different financial realities than our parents. The recession took place so early in our adult lives, though. We arguably still had plenty of time to overcome those different challenges. But more recently, the pandemic and high inflation have made that assumption seem overly optimistic. For our generation, we may now have no choice but to approach our personal finances differently.
The most widespread change may be a spending reset. We all think about money management differently, based on our personalities and lived experiences. Even so, stagnant wages, pandemic shutdowns, and high inflation have forced all of us to recently re-evaluate our spending habits.
Many of the Millennial clients with whom I work feel at least somewhat stressed about their spending. This is true even for high-earning, two-income households. If nothing else, many payments leave their bank accounts automatically, as part of a recurring payment. And they may rely heavily on credit cards in which the timing of purchases rarely aligns with the timing of payments.
But the pandemic and high inflation have confronted us with conditions that, if we so choose, can meaningfully redefine our spending habits. We’ve had a chance to think twice before returning to previous (ongoing) spending commitments. And we’ve been able to question the value we receive from our most expensive forms of entertainment.
A side effect of the financial stress that we’ve felt in recent years may be a shift in how we think about money on a day-to-day basis, particularly in the form of reduced spending. I doubt we’ll want to give that up very easily.
Any lasting changes in how we view spending may align with a historically strong interest in emergency savings accounts. Financial blogs and articles have long trotted out the typical “3-6 months” recommendation. For just as long, though, few people have understood how many months to choose or what numbers they should include in that calculation.
The difference for our generation is that we lived through such an “emergency” experience in 2020. At the peak of pandemic uncertain, many people felt concerned about where their money might come from in six months. These memories may override or at least temper their financial decisions. The satisfaction of owning a house or saving for college will always be a powerful force.
But perhaps that force is now countered by a desire to protect themselves from an empty bank account. Emergency fund savings will always remain a work in progress for almost everyone. In the future, though, we may put much more effort into this particular objective. That ambiguous rule of thumb, in fact, may more often sound like “6-12 months” for Millennials going forward.
Millennials did not previously have a reputation for having a strong emotional attachment to housing. We were happy to rent indefinitely, according to the most popular narrative.
But in recent years, Millennial home ownership preferences have caught up to previous generations. As a result, our emotions around housing will play an outsized role in many of our financial decisions in the years ahead.
Given the state of the housing market, though, housing dreams increasingly collide with savings realities. Home prices, particularly in a high interest rate environment, will continue to remain out of reach for many Millennials. Others ultimately won’t be willing to part with so much of their savings, which they also want to use for other purposes.
Millennials already are on their way to becoming the first generation since the post-war housing boom to reject the idea that renting is always worse than buying. And this belief will only gain strength as long as home prices remain high.
But many Millennials still will want to try to move ahead with their housing interests and dreams. The most likely change may be accepting higher costs as standard, particularly the private mortgage insurance (PMI) that comes with a down payment under 20 percent. In the years ahead, that “standard” 20% down payment may not feel so standard anymore.
In the absence of other reasons, some first-time homebuyers rationalize a housing purchase as a smart long-term investment. The good feelings that this thinking generates may even give them the confidence to push retirement savings further down their priority list.
Even diligent retirement savers, though, can struggle to prioritize a goal that remains 30 years away. I regularly encounter Millennials who haven’t invested excess savings simply because they don’t know where to start or fear making a mistake. And this was true even as the stock market experienced tremendous growth from 2011-2021. More recently, Millennials have had to think about investing in the face of significant stock market losses.
Our generation needs to understand, with confidence, where and how to invest our money. This has long been true, but at this point, we really can’t afford to wait much longer. More specifically, we need to see that investing can be accessible, straightforward, and low cost. There will always be countless investment philosophies, many of which will be valid based on individual goals and circumstances. But we need to start — and stick with — the basics. We need to understand how to attain appropriate asset allocation and diversification with the least amount of monitoring and transacting.
Candid conversations about risk tolerance and asset allocation are more critical than ever. Many personal finance articles habitually point to target-date funds as the most effective way to invest, no matter your age or investing experience. As Millennials reach midlife, though, this default option may become insufficient. We may need to invest aggressively for longer to counteract lost time and multiple recessions. Target-date funds may adjust to account for this reality. But young investors also should know their way around a handful of index funds. We need to get our (extra) savings invested, and we need to feel empowered to do so — in a timely manner — on our own.
When most people think about improving their finances, they focus their attention on cash outflows –their spending. We rarely devote as much thought to how we can increase the money coming in. Earning more money takes time and energy. Changing jobs involves risk and uncertainty. As a result, even when the topic of generating more income comes up, ideas and tips only go so far. And most people are understandably focused on existing job hierarchies, which shapes their clearest path to promotion and additional compensation. So we end up devoting all of our working hours to an industry or employer’s expectations.
But the reality remains that employer income is fragile and wage growth is lackluster, even for many highly-skilled and educated workers. But income can come from many sources and take many forms. Rising young professionals don’t need to quit their jobs or sacrifice their current career plans to plan for additional streams of income. A light form of entrepreneurship doesn’t need to consume their free time or force them to incur large upfront costs.
Rather, anyone with a specific skill set can begin to think about how to create and market services at which they excel. Gradually, they can build a network and seize opportunities to generate secondary income streams. Over the long term, as we face both new and ongoing threats to our financial stability, young adults who also focus on the plus side of the ledger will make themselves less financially vulnerable.
Ultimately, the tactical changes that we make to our personal finances in the years ahead will only get us so far. We also need to start advocating for ourselves. We must learn to become comfortable talking about money. And in so doing, we need to become more vocal about the corporate and government policies that most impact our financial stability.
Beyond the changes we’ve already witnessed, Millennials will need to continue to think about money differently in the years ahead. Stock prices, the housing market, inflation, and economic downturns will always force our hand in ways that we can’t fully control. But at least one thing will remain as true as ever about personal finance: how we act and the choices we make often will reflect our values. We have an opportunity to completely overhaul financial narratives, policies, and options if we allow our values to dictate our responses to the financial challenges that face Millennials specifically.
On those mornings when my son asks about playing soccer after school, he may also chime in with thoughts on how we can make that happen. He might point out that a certain time has a better chance of succeeding than others. Or he might suggest that we bring our own mini soccer nets if prime areas of the field are occupied. In essence, he’s advocating for his own hopes and interests. And that’s exactly how we’ll need to respond, too.
[Editor’s note: this article reflects the transcript (which I’ve edited for clarity) of a recent Financially Well podcast episode.]
Hi, I’m Kevin. I’m a financial advisor in Washington, DC. I’m also the founder of Illumint, an independent financial planning company in the District that specializes in financial planning for Millennials like you. I empower our generation with the confidence to invest an inheritance, financial gift, or extra savings. If you’re new to Financially Well, welcome – you now have access to the leading finance podcast for Millennials. I encourage you to read, watch, or listen to the ideas I’ve shared about making your money work for you. And then when you’re ready, please send me your thoughts & questions!
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