Why Millennials Are Fast Becoming The Most Financial Savvy Generation

The millennials are taking over! And they're getting their personal finances organised in readiness...

Millennials are entitled, lazy, job-hopping brats who waste their money on avocado toast and overseas travel, right? Not true, old man Boomer! In fact, growing up in the post-GFC fallout has actually shaped a cautious but disruptive approach to personal finance for Gen Y’ers. They’re going to rule the world one day and still have a decent retirement fund to look forward to!

Millennials and personal finance – the same, but different…

To start with, the word ‘millennials’ already sounds better than Gen Y. It seems to have eased some of that cliched baggage. Besides, it was always an unfair description in the first place; formed by the Baby Boomer and Gen X media, who were perhaps threatened by a generation unwilling to accept the status quo. Millennials are always looking to do things differently – and that can be scary for people who don’t like change.

In truth it’s hard to even say that all millennials are similar to each other – born between 1981 and 1996, there’s a 15-year-span of ages, experiences and backgrounds. You could be a 38-year-old career woman living in Potts Point with 20 cats, or a 23-year-old father of three from rural Victoria who drives buses, and still come under the same Gen Y umbrella.

If there are some similarities, then it’s the way millennials embrace technology, value experiences over possessions, refuse to follow convention, but are surprisingly conscientious when it comes to their personal finances and debt. Although interestingly, they’re happy to embrace new developments in buy now pay later such as LatitudePay.

Millennials are saving earlier than the previous generation, avoiding credit card debt, thinking about retirement already, and shopping around for bargains – both with purchases and with personal loans or investment opportunities.

While some might be backpacking around South East Asia, drinking kale smoothies and caring for elaborate beards, the majority are living very conventional lives. And hey, kale smoothies and hipster beards have become the mainstream anyway.

Already, around half of millennials own their own home, more than 40% have a degree, around two thirds are contributing to a retirement plan, and almost a third are likely to have investments. And people say they’re lazy!

Millennials are cautious when planning their finances – and their lives!

Millennials may like to backpack around South America, but they have a cautious approach to money – and with good reason. Aged between 12 and 27 when the 2008 GFC hit, they were all faced with the fallout. Either graduating into a harsh global economy or reaching higher education at a time when student loans were at an all-time high. Expensive education and the rising cost of home ownership, combined with slow wage growth is enough to make you very careful with money.

Many millennials believe that they have it tougher than their parents did – and in many ways they have. But rather than behaving in the spoilt way that the stereotypers might suggest, many are just hardening up to the prospect and finding a new way to succeed.

Millennials are commonly delaying marriage and kids; Instead they’re concentrating on building a career and a strong financial base. Either renting in the most cost-effective way they can or staying at home longer. Maybe that looks lazy and selfish to some in the media, but it makes sense.

It’s not laziness, it’s simply a sensible reaction to the conditions they find themselves in and the best way to find a way out.

Millennials shop around

Millennials are even sensible when it comes to spoiling themselves. They’re the most price-conscious when it comes to shopping. It doesn’t mean that they look for the cheapest deal, but that they understand the concept of shopping around for the correct price. Millennials won’t let quality slip in pursuit of a cheaper product, but they won’t pay over the odds for something generic.

Millennials thoroughly research their bigger purchases – this is the Google generation, after all. This means that they’re less loyal to stores than previous generations. They may be loyal to brands that they trust or products they love, but they don’t mind where they buy them from.

As for lazy, well millennials are more than happy to take on more than one job. Plenty of millennials have a ‘side-hustle’ alongside the day job; maybe some freelance, or a market stall, or a creative second job. Millennials are happy to work hard to achieve their financial goals and special purchases.

No to the stock market, but yes to financial plans

Another consequence of growing up in a recession, is that millennials are more risk-averse with investments than Baby Boomers and Gen X. Burnt by seeing stocks tumble, they prefer to keep their savings in more simple savings accounts. But despite this and suffering the pain of long-term student loans, they’re not against taking on personal loans to help finance their lifestyle goals.

Again, like with purchases, they’ll shop around for the best deals and a personal loan that has good rates with a provider they trust. But whether it’s for a car, a holiday, or to enter the housing market, millennials will take on a personal loan if they believe they have the means to pay it off.

And they invariably have a financial plan.

A third of millennials have a written plan for their goals. For Gen X and Baby Boomers it’s usually more like 20%. Most are saving for an emergency fund, many for retirement or a house. Similar goals to their parents, but with a definite plan written down that usually includes a budget.

The generation avoiding debt

And while millennials are happy to take on a loan, they don’t like the pressure of high debt. Most surveys show that millennials are more likely to live within their means than Gen X or Baby Boomers. They’re more disciplined at both constructing and sticking to a budget.

Caution extends to credit cards – millennials are happy to have a credit card, but try to make sure they pay it off every month, even if they use it for most purchases. While millennials are likely to use their cards for a $4 coffee or a $4000 holiday, they try not to incur interest through unpaid balances unless absolutely necessary. They see the credit card very much as a means to purchase, rather than an auxiliary emergency savings fund.

If you’re a millennial yourself, then none of this will be surprising. If you’re a Gen X’er or Boomer reading this and you’ve been surprised at seeing myths dispelled, then Gen Y and retirement is where it really gets interesting.

The young ones already planning for retirement

Millennials are saving for retirement earlier than any other generation.

Perhaps that confirms your suspicions that Gen Y just don’t like working! But actually millennials have seen their parents exposed by the Global Financial Crisis and they want to be safer in their older years.

Some millennials are saving as much as 20% of their income for retirement. And more than any other previous generation, they’re using technology to check on their balances regularly. But they’re wary of the stock markets and tend to stick to risk-averse funds.

The Fin-Tech revolution

Technology is where millennials are streets ahead of other generations. In fact even Gen Z that follow millennials are using technology for their finances as soon as they're old enough to have access.

Online banking is standard for millennials for which social media is second nature. Mobile apps and the website of their financial institution are permanent fixtures on their laptops and iPhones.

It goes way beyond just checking transactions too. Millennials are happy to read information that shapes their financial lives. And they're open to banking alternatives: branchless banks and innovative financial services, different ways to pay, different ways to save, new approaches to credit and debt.

Time is money

In addition, if there’s one thing that millennials truly have over previous generations then it’s time. They’re learning how to deal with money and invest at a younger age. They have time to build savings. And they have windfalls on the way.

Analysts believe that when baby boomers pass on their wealth in the future, it’ll be in excess of $4 trillion in the US and UK alone.

This ‘inheritance boom’ will change the face of personal finance on a global scale – a larger generation passing on wealth to a smaller one should be good news. But it’s by no means universal: Fewer bigger inheritances to a smaller group take up the majority of wealth transfer. Some will be passed a lot of money, most will get relatively little, if anything at all.

Irrespective of whether they inherit millions or nothing, the millennials are not the Gen Y slackers that the media might have you believe. Hard working, money-conscious and taking new approaches to personal finance, millennials are rapidly becoming the most financial savvy generation we’ve ever seen.

Until perhaps Gen Z enter the picture…