Financial Planning for Millennials
Written by:
Wilson College
• Apr 10, 2024
Financial Planning for Millennials
Who are millennials? Born between 1981 and 1996, millennials are the largest generation in the U.S. with a population of around 72 million. The oldest millennials have reached their early 40s, while the youngest are in their late 20s. These are critical years for building financial plans. Burdened with debt and experiencing lagging incomes, millennials face an uphill road. Following are statistics as well as tips on financial planning for millennials that can make a big difference.
To learn more, check out the infographic below, created by Wilson College Online’s Bachelor of Science in Accounting program.
Millennial Financial Statistics
What do the spending habits of millennials look like? How about their debt and income? A look at millennial financial trends reveals the challenges this generation faces.
Millennial Financial Trends
Millennial debt continues to grow. A recent study by Experian found that, between 2021 and 2022, the total average debt for millennials grew 15%, reaching an all-time high of $115,784.
In a single year, millennials saw their credit card debt skyrocket 23.4%, while their mortgage debt increased 9.8%. Millennials also saw smaller increases in their auto loan debt, 5%, and student loan debt, 0.9%.
Income vs. Spending
While millennial households report a solid pretax income, their spending numbers nearly equal their income. In 2020, households brought in $71,566 in income, yet the average millennial spends $70,147 per year. That doesn’t leave much room for saving.
Comparing the Generations: Millennials vs. Gen Xers
How do millennials and Gen Xers compare when it comes to finances? The data shows that millennials have a lower net worth and higher student loan debt than Gen Xers did at the same age.
In 2019, millennials had a median net worth of $23,130, compared to $32,359 for Gen Xers at the same age, and millennials reported $27,500 in student loan debt on average, compared to $11,500 for Gen Xers at the same age, per data compiled by the Employee Benefit Research Institute. In fact, 45% of millennials at ages 25 to 36 held student debt, compared to 25% of Gen Xers at that age, according to a study by the U.S. Government Accountability Office.
Still, millennials and Gen Xers reported similar total debt levels at ages 25 to 36, with $38,500 for millennials and $39,500 for Gen Xers.
Money Anxiety for Millennials
Most millennials worry about their financial futures. A total of 74% report stress about their finances, according to the 2022 Investopedia Financial Literacy Survey. Saving money, paying off debt, and retirement planning rank as their top worries.
Over 70% of millennials also report stress about their financial security in retirement, according to a report by the National Institute on Retirement Security. In comparison, 59% of Gen Xers and 43% of baby boomers worry about retirement finances.
Financial Planning Tips for Millennials
Cutting out avocado toast and making coffee at home isn’t going to magically transform anyone’s budget. Still, controlling spending, decreasing debt, and boosting savings can set millennials up for financial success.
#1 Manage Spending
Fixed expenses make up the largest portion of people’s budgets, so managing fixed expenses can have a major impact. Common fixed expenses include rent or mortgage payments, utilities, and car expenses. Health insurance, student loans, and child care are other common fixed expenses.
By focusing on increasing income and decreasing spending, millennials can have the largest impact on their finances. Millennials can increase their income by finding a new job, adding new skills, asking for a raise, or taking on a side job.
The best ways to decrease spending include cutting unnecessary expenses, lowering bills, paying off debt, or capping spending on fun activities. In addition, millennials can cut hidden costs like interest charges, subscription service fees, or banking fees. Cutting back on upgrading technology and impulse buys also helps with spending management.
#2 Decrease Debt
Paying off debt means more money for savings or other financial priorities. Millennials report an average monthly debt payment of $443, according to a recent Credit Karma study. That number often includes student loans, car loans, and credit card debt.
Millennials carry an average student loan debt of $31,297, plus an average car loan debt of $23,766. On average, millennials owe $5,898 on their credit cards. By paying down their debt, millennials also save on interest.
#3 Increase Savings
Increasing savings gives millennials financial freedom. By creating an emergency fund, saving for retirement, and prioritizing savings, millennials can boost their financial future.
Emergency Savings
A majority of millennials—59%—do not have enough emergency savings to cover three or more months of expenses, according to Bankrate’s 2023 emergency savings report. And 27% have no emergency savings. Millennials should aim to have an emergency fund that can cover three to six months of their expenses. They can start small and keep building their emergency fund.
Retirement
Millennials will need an estimated $3 million to retire. And yet, in 2022, the median 401(k) balance for those 25 to 34 years old was just $11,357, while for those 35 to 44 it was $28,318, according to a 2023 report by Vanguard.
There’s some good news. Millennials started saving for retirement earlier than previous generations. While the median age to start saving was 30 for baby boomers and 28 for Gen Xers, it was 25 for millennials, as reported in a Kiplinger article.
Saving and Investing
Taking a few steps can help millennials maximize their savings and increase their investments. If possible, they should aim to save 15% to 20% of their gross income. They should maximize their employer’s 401(k) matches, if possible. They should prioritize savings accounts that offer tax advantages. And they should invest in index funds over the long term.
Financial Tools for Millennials
As millennials enter their peak earning years, it’s important that they prioritize financial planning. The following tools and resources can put millennials on the right path.
Financial Tools
Many financial tools can help millennials plan for their futures. Budget tracking programs like Mint and YNAB offer tools to create and manage a budget. Credit monitoring sites offer free annual credit reports. And millennials can secure their savings with FDIC-insured high-yield savings accounts to take advantage of high interest rates.
Finding Reliable Resources for Financial Planning for Millennials
How can millennials find reliable resources for financial planning? Nearly 8 in 10 millennials and Gen Zers say they have gotten financial advice from social media, according to a survey commissioned by Forbes Advisor. The most trusted platforms include Reddit and YouTube. And 28% say they have lost money by following financial advice from social media.
Millennials can strengthen their financial literacy and plan for their financial future by identifying reliable resources.
Planning for a Financially Secure Future
Millennials have faced turbulent economic conditions, from the Great Recession to the COVID-19 recession. By planning ahead now, millennials can set themselves up for a financially secure future.
Sources
Bankrate, “Bankrate’s 2023 Annual Emergency Savings Report”
CNBC, “How Much Money Do Millennials Really Make?”
Consumer Reports, “Millennials Are Behind Financially. Here’s How They Can Catch Up.”
Credit Karma, “Average American Debt by Age and Generation in 2023”
EBRI, Generational Comparison Analysis
Experian, “Experian Study: U.S. Consumer Debt Reaches $16.84 Trillion in Q2 2023”
Forbes, “Nearly 80% of Young Adults Get Financial Advice From This Surprising Place”
Investopedia, “Millennials: Financially Confident but Very Stressed”
Investopedia, “Top Financial Literacy Education Gaps Across Generations”
Kiplinger, “Three Tips to Help Millennials Strengthen Their Finances”
Nasdaq, “You Won’t Believe How Much Gen Z and Millennials Will Need Saved Up to Retire”
National Institute on Retirement Security, “Generational Views of Retirement in the United States”
U.S. Census Bureau, Income and Poverty in the United States: 2020
