Are Millennials Heading to Financial Disaster?

Millennial Heading to Financial Disaster 25 Oct, 2018

The economy today is a lot different than it was a few decades ago. Inflation is constantly increasing, housing cost rising, and the cost of living just gets higher and higher. But it's not something to worry about. It's part of a growing and bustling economy.

But why does the media predict millennials will head into financial disaster? There are various reasons why and I'm here to help you identify what are the factors involved that will make millennials head into financial disaster.

If you're a Millennial yourself, then you should start considering your options for the future. Money isn't always around. You need to secure your finances so that by the time you go to retirement, you will have enough money to spend without working in the future.

If you're a parent, uncle, aunt, grandma or grandpa of a millennial, then you should help educate them on how to save up so that they will have financial security in the future. Don't let them be comfortable in relying on you for financial needs.

Factors Why Millennials Will Head to Financial Disaster

Financial Education

First, let's go to the root cause of why millennials make poor financial decisions. It's because they lack the knowledge to make good financial decisions. Why? Because only 17 states have required personal finance course for high school students. So when they enter the working class they don't have a clue on how to properly use their money.

Most millennials spend their money to needless things without thinking of drawbacks. They commonly spend it on vacations or personal expenses. Not much is being spent or thought over to making their earned money earn more through passive income.

Retirement Funds

More than a third of millennials make withdrawals from their retirement accounts or 401(k) plans. They treat the retirement account like a savings bank without knowing that it will grow over time to provide you with steady income in their later years in life. What's, even more, is that the money withdrawn isn't commonly used for business or trying to increase it more. Instead, they spend their money on hobbies and leisure

This carefree attitude towards their retirement account shows that they have no clue on how the financial tool works or they don't have their priorities figured out yet. Most millennials have the mentality that money is easy to earn. They are right in some way but they forgot to consider factors such as age, skills, and that it takes a really long time to build up a huge amount of wealth.

Student Loans

According to a report by Business Insider in November 2017, the average student debt of every graduate who took loans is at $17,126. College tuition has been increasing since. It has now more than doubled since the 1980s. It's a very burdensome expense. Especially for an average graduate who will start a job with a minimum wage salary.

The number of students taking student loans has also increased and will continue to increase. Students also borrow more money as the year goes by. It has soared from $16,500 to $20,400.

Real Estate

Real estate prices have also skyrocketed. Which deters millennials to even give an idea to invest in real estate. According to Student Loan Hero, millennials buying their first home today will have to pay 39% more compared to when baby boomers bought their first home.

Real estate prices plus the student loan debt they acquire from getting a degree is why the majority of millennials do not invest in real estate. It takes a lot of time-saving money in order to make a downpayment for a house. In a report by SmarAsset, it takes nearly a decade to make the money you need in order to get a 20% downpayment for a house.

Millennials and Rents

Because real estate isn't enticing to millennials, they turn to rent. Even so, rent prices are also soaring. When adjusted for inflation, rents increased by a margin of 46% from 1996 to 2000. This is according to Student Loan Hero.

With rent prices increasing and real estate prices also increasing, it's hard for a millennial to secure the money he/she needs in order to afford the cost of downpayment for a house. They have to pay a pricey rent and repay their student loan debt. This leaves little to nothing for a real estate savings. Especially for millennials.

Relying on Parents for Financial Assistance

The higher cost of living has taken effect for millennials. More than half of millennials from the age of 21 to 37 rely on their parents for financial responsibilities. It's not also limited to parents, but some also rely on a guardian or a family member for financial assistance. Also, 35% of millennials still live with their parents.

Although some of you might think living with parents is a negative thing. It can actually be a good way for millennials to accumulate wealth, enough to afford a house of their own. It's an alternative solution to building up a millennials wealth. Moreover, If you should stay at your parent's house or your child for that matter, It would be wise to share the expenses and monthly bills in the house. This can help a millennial learn and be responsible for his/her finances.

A bad example of millennial staying in a parent's house is the case of an unemployed 30-year old who was finally kicked out by his parents.

Although there is a higher cost of living. Millennials can get by if they work extra hours. The problem is that millennials spend on things that aren't a good investment. In short, they spend more on things they want rather than their needs.

In fact, 9 out of 10 Americans spend money on things they want but don't need. 4 in 10 are using their savings, and only 1 out of 8 people haven't worked on their retirement fund. In fact, 25% of them use credit cards or delaying savings for the expenses they make like vacations, and luxury items. This explains a lot of the financial education of the present United States.

What Has Changed in the Cost of Living for Millennials?

Although millennials do share a part of the problem, they're not the entire problem for their impending financial failure. While wages have gone up, the prices of basic commodities and economic expenses also went up. Here are some of the things that have set-up millennials to a financial disaster:

  • Real Estate
  • Rents
  • Student Loans
  • Entertainment
  • Childcare
  • Cars
  • Health Insurance

These things are essential to have for a good quality of life. Their prices have soared up compared to previous generations and millennials are paying for it. But it's not entirely because of this that millennials should blame their financial constraints.

For example, we all want entertainment. You can't just work forever. Stress will catch on you and your health condition may be compromised. On the other hand, the average millennials spend way more on entertainment than the previous generation. Also, the prices of entertainment like sports, music festival and concerts have all increased by a really large margin compared to when you would buy tickets in the 1970s.

But we can't also deny that the cost of living when adjusted by inflation is really high compared to the previous generation. Things like real estate and health insurance are so hard to afford.

What Must Millennials Do?

As a trend of a growing economy, inflation will rise. So does the cost of living within the economy. As members of the workforce, you must adapt to the ever-changing economy as it will not try to accommodate you.

The first thing that every millennial should do is to invest in financial education. If you are educated in the field of finance, you will surely better know your available options. Millennials tend to focus on the now instead of their future. This is mainly because they're not educated in finance. They don't know how to accumulate wealth and make that wealth produce passive income to secure retirement.

More millennials have a knack to spend. They make clumsy financial decisions that severely harm their retirement funds. The most common thing they do is make withdrawals from their 401(k) plans. They treat it like a savings account without knowing that every withdrawal they make cuts to their retirement assets in the amounts of thousands.

Next would then be to spend wisely. Start investing your money for the future. Turn your hard-earned money into passive income that will help you in your retirement in the future. It doesn't mean that you should do away with enjoying yourself but it should be done responsibly. Learn how to budget your finances, allocating a certain amount for retirement, savings, emergency, entertainment, and all things associated with your lifestyle.

Although this may have somewhat had a negative connotation, living with your parents does help out a lot with accumulating wealth. You save up on rent and share the monthly bills for electricity and other things. That is if your job is within your parent's home. The times are changing, and all of us must adapt or create new ways to save up on money and accumulate wealth.

If you're a parent yourself, you should consider this heavily. You help your children save up more so that they have more flexibility in their financial needs. But do also educate them about finances. Help them grow and become a financially independent & responsible adult.


Millennials really are heading for financial disaster, but it's not something that can't be stopped. If millennials start educating themselves on finances, then they'll have a lesser chance of heading into financial disaster.

Although millennials may have been seen in a bad light in recent news, it doesn't have to be always that way. Because they will take over the next generation in the future. It's the same for every generation. If you're from the previous generation yourself, you should start imparting your wisdom, and guide millennials so that the future of the U.S economy will still have a bright future.


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