The Millennial generation have grown up with a vastly different lifestyle than their parents, and the gap between them and their grandparents makes their lifestyle seem unfathomable. After all, Millennials grew up in a world with internet, cell phones, and iPods.
It is safe to say that the Millennial generation has had infinite amounts of information readily available to them and are quickly becoming the smartest generation in history, but according to new research from the Principal Financial Group, there is still one topic Millennials haven’t mastered – money!
When it comes to comparing different generations and their financial practices, the Millennial generation takes the cake in terms of debt and a lack of budgeting know-how. However, it’s not as though the Millennial generation doesn’t understand the need for financial security. In fact, 70% of Millennials state financial security as their top goal and roughly 63% of Millennials started saving for retirement before the age of 25.
So what’s the problem? Not even a third of Millennials are actually saving at least 10% of their salary for retirement and experts are saying, “That just won’t cut it.”
Jerry Patterson, senior vice president of retirement and investor services at The Principal, says “… just as important as saving early is saving enough…” There is a disconnect or a misunderstanding from Millennials regarding what it costs to maintain the lifestyle that they are currently living. That may be because many Millennials live beyond their means.
Millennials see large expenses, especially student loans and other debt, as primary obstacles to saving anything for retirement. Saving for retirement competes with many big-budget items for Millennials. So how are Millennials spending their money?
A study from the American Institute of Certified Public Accountants shows that over three quarters of Millennials spend money on clothes, cars and technological gadgets and they are calling these purchases, “basic expenses.” Millennials are driven to obtain or maintain lifestyles similar to their peers, and around half of them have to use a credit card to pay for basic daily necessities such as food and utilities. Over 25% of Millennials have late payments or are dealing with bill collectors, thus influencing credit scores, interest rates, and most of all their ability to save.
It is important to remember though, that these spending habits are just habits and bad habits can be broken. Millennials need to change the way they see debt and “basic expenses.” Credit card and student loan debt has become so frequent and normalized that it has been become generally accepted and even considered necessary – but this isn’t the case. Cell phones, cable subscriptions, and designer clothing should not be considered basic expenses, but luxuries.
“Keeping up with the Jones'” has never been a wise financially strategy, and the sooner Millennials learn that, the better off they will be.
How much money should you be spending on your expenses? Find out the national averages and expert recommendations by using the Mvelopes mobile app free for 30 days.
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