Millennials and Debt

There has been so much said about the Millennials and Debt but I must add my thoughts as well; as I have raised two Millennials.  At an early age, we taught both of our sons the value of saving. We opened savings accounts for both of them when they were in grade school.  We had them each deposit funds to their accounts at their discretion.  These funds were to be used for future college expenses. We also had many conversations about the pitfalls of credit card debt, however, they were not beyond falling in headfirst. Millennials in debt, is there a way out?

My Millennial Sons In Debt

My oldest son graduated college debt-free and obtained a job in his field of choice.  Then the first recession hit in 2007.  Even though we allowed him to stay home to build an emergency fund prior to moving out, he still landed on hard times.  Loss of his job, utilizing credit cards and going back to school for better job opportunities.  All of this forced him to return home again to rebuild. After getting back on his feet the 2^nd economic downturn happened and again, he is rebuilding his future.

My youngest son, 8 years his junior did not experience the first recession.  However, he created his economic downturn.  Once he finished school with some college debt that we were helping with, he still managed to run up a debt he could not afford.  Similarly, he returned home and it took him one and a half years to climb out of about $30,000 in debt.  Per the Experian 2019 Consumer Debt Study, the average Millennial is in debt for about $87,448.

His debt wasn’t this bad but we had him create a plan to get out of debt quickly.  He is now building his emergency fund, hopefully with lessons learned, to move out in the next 6 months. His emergency fund once again will be 6 months of living expenses. He is saving what he can expect to pay for rent and utilities, a car note and insurance, and food. Shelter, Utilities, food, and transportation are the basics for an emergency fund. Transferring funds to high yield savings each pay period grows confidence that he is financially secure but also builds great budgeting habits.  Saving should be a habit for Millennials to be debt-free. 

Millennials, Student Debt, housing and Income

It is no secret that Millennials have been saddled with two economic downturns and a ton of student debt. This situation is having a long-term effect on their financial security.  They have experienced wage stagnation and declines with limited job mobility. This long-term financial insecurity has made it very difficult for Millennials to obtain homeownership. 39% of Millennials own homes vs. 47% of Gen X and 55% of Baby Boomers.  Most net worth is built with homeownership. In addition to this is the massive amount of student debt Millennials are obligated to pay back.  They are by far the most educated generation to date but with the most debt.  Student debt was $1.4 Trillion at the end of 2017, up from $340 billion in 2003, a 310% increase.  The average 25 years old Millennial holds $21,000 in student debt per the Joint Economic Committee.

In my twenties after graduating college with a very small amount of debt (about $1,500) I was able to find a decent job and an affordable house.  By the time I turned 30, I bought my first home.  In 2018, 15% of Millennials (ages 25 to 37) were living in their parents’ homes. This is nearly double the share of early Boomers and Silent generations (8% each) and 6 percentage points higher than Gen Xers who did so when they were the same age per Pew Research Center.

Millennials and Irresponsibility

Both of my sons acknowledged that some of their debt was due to low-paying jobs and irresponsibility, however, they are not alone.  Many of their friends amassed student loans and credit card debt the same way.  After finishing school, wanting to live and the easy access to credit they found themselves in a lot of trouble.  Adding to this trouble were the low-paying jobs available.  There was just no way to keep up.  Are Millennials and debt an unlucky situation or a tragedy? 

As a Boomer, I fell into the credit card trap but I did not have to deal with two economic downturns, a pandemic, and low wages. The median net worth of households headed by Millennials (ages 20 to 35 in 2016) was about $12,500 in 2016, compared with $20,700 for households headed by Boomers the same age in 1983. The median net worth of Gen X households at the same age was about $15,100 per Pew Research Center.

It has always been important to Millennials to have experiences.  Spending money on travel and recreation to enjoy their lives rather than buying materialistic things. It was more important to have something to share on social media platforms. Nothing wrong with wanting to live but not when it increases your overall debt (it can be a problem).  Therefore, the priority should have been to pay off the student loans first then experience life.

Millennials and Getting Out of Debt

In order to get out of debt Millennials may need some help.  We allowed our sons to move back in to obtain financial freedom and to get back on their feet.  If this is not an option then obtain a roommate to reduce cost and free up funds to pay down debt. Therefore, if you have any friends willing to allow you to crash on their couch, I would take them up on this.

Create a budget and stick to it.  There are various apps on the market that can help you achieve this goal.  I suggested the EveryDollar.com (Free) app to my son.  He found it easy to get started and very helpful in managing his budget. It was also convenient for him to use on his phone rather than a desktop.  There are a host of others such as YNAB (Fee), Pocket Guard (Free), Clarity Money (Free), and Good Budget (Free). I personally prefer a customized spreadsheet to be more flexible for me.  Others may prefer paper and pen.  Use your budget to keep track of every penny you spend.  Review your current expenses and reduce or eliminate every non-essential expense.

If you are in default, contact your creditors and see if they will negotiate a better interest rate and/or a final payoff amount.  My son utilized both these options when he fell into default.  Credit card companies and collection agencies are willing to work with you to help you get out of debt.  Just make sure that once you have satisfied the payoff that they remove any derogatory remarks on your credit report.

Millennials Job Opportunities

To increase your income research jobs by starting salary.  Many good-paying jobs just require on-the-job training with or without a degree in that particular field. Without incurring any additional costs try to find a pathway into these careers.  If this is not an option for you then try some gig work, ask for a promotion or raise at work. If your company offers bonuses strive to achieve them. Use every additional income source towards paying down your debt.  Above all, your entire focus should be on paying down your debt as quickly as possible.

Millennials and Future Debt – Never Again

Getting out of debt can be the most painful experience for some.  You have to practically put your entire life on hold.  You can no longer live like you have become accustomed to.  Most of your income will be going towards your debt. However, it is so worth it because once you are debt-free all your money is yours again.  Millennials should strive to never be in debt again.  If you have to use your credit card make sure you can pay it off each month.  Never, ever pay another cent in interest.  Once out of debt build an emergency fund because this will eliminate the need to use a credit card or borrow.

Recap Options To Get Out Of Debt

1. Create a Budget with a plan to get out of debt

2. Ask friends and family for help

3. Contact your creditors to negotiate the terms of your debt

4. Research better job opportunities, get a gig job, ask for a promotion or raise from your current employer

5. Stay focused on getting out of debt

Additional blogs to read for budgeting tips

Setting Up A Budget for Beginners

Slave to the Lender

Checking and Savings Accounts

There is a pathway for Millennials and debt but it will take staying focused on reaching a goal to become financially independent. Be encouraged that it can be done and in this lifetime.

Let’s Budget, Spend, and Live

Sabrina