Financial Planning, Retirement Planning

A Focus on Building Wealth for Millennials

October 30, 2018


As seen on The Rhode Show

Millennials are the generation born between 1981 and 1996 - they came of age during the Great Recession and are dealing with several unique financial problems, including a much higher student loan debt burden and the need to save much more than their parents for life milestones (e.g. having children, buying a home, retirement). As a result, millennials born in the ‘80s are at risk of becoming a "lost generation" for wealth accumulation. Here’s why…

  • Student loan debt is one of the most notorious expenses burdening millennials and college tuition has more than doubled since the 1980's
  • Millennials buying their first home today will pay 39% more than baby boomers who bought their first home in the 1980's.* In fact, the value of homes has increased by 73% since the 1960's, when adjusted for inflation.
  • Rents increased by 46% from the 1960's to 2000 when adjusted for inflation.* In 1960, the median gross rent was $71, or $588 in today's dollars. By 2000, that number had risen to $602, or $866 in today's dollars.
  • Due to inflation, in 40 years (around the time millennials will be retiring or in retirement), $1 million in savings would have the same spending power as $306,000 today
  • As of 2016, millennials had wealth levels 34% below where they would most likely have been if the financial crisis hadn't occurred, making them the slowest group to recover from the Great Recession.** They've been struggling to catch up ever since.

How can millennials address the issues outlined above and build wealth? Here are a few easy steps…

  • Utilize a budget - Only 41 percent of Americans use a budget. Young adults on their own for the first time may bristle at the idea they must limit spending, but your budget can become a way to ensure money is spent on the priorities that matter most. There are many free resources out there – including apps and online tools – to assist with creating (and sticking to!) a budget.
  • Start saving for retirement now - Expenses such as student loan payments or saving for a down payment on a house can make it hard to prioritize saving for a retirement that is decades away. However, waiting to begin saving for the future is one of the biggest mistakes you can make, because of the power of tax-free growth and compounding. Think of saving for retirement as paying yourself first. Take advantage of opportunities offered through your employer: many employers will match contributions which is essentially free money. And if you have access to a Roth 401(K) plan, this can be ideal because the contributions and earnings grow tax-free and can be taken and used in retirement tax-free!
  • Understand taxes - It is important to understand implications of taxes so as not to miss out on deductions for student loan payments or the lifetime learning credit that can be used by those in graduate school. There may be confusion about having to claim money earned through side jobs such as driving for Uber or reselling goods on Amazon. However, generally if you earn over $600 per year from any side gig, the company paying you (e.g. Uber) must report it on forms to the IRS, so you need to report it as well, or face penalties.
  • Remain consistent - Failing to follow a single system can leave your finances disorganized and prone to other mistakes.

Sources: * Student Loan Hero ** The Federal Reserve Bank of St. Louis

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