Millennials came of age during one the worst financial crashes of the past century. They saw the Great Recession decimate the retirement accounts of their parents and grandparents just before they hit their golden years. Therefore, they took some important lessons to heart.
They Get Side Hustles
When looking at the financial situation that they’ve seen their parents in, many millennials have decided they want none of it. More income is a necessity for these people to build wealth as wages have stagnated over the past forty years. Therefore, millennials are more than happy to get side hustles. Sometimes, these side hustles are all that millennials have when it comes to income. Regardless, many millennials are entrepreneurial, and some have even been able to build quite a sizable income from their side hustles.
They Are Frugal
Many Boomers and Generation Zers have been profligate spenders throughout their lives. There was a commercial before the Great Recession that had a man standing in the yard of his over-sized house with his nice car in the driveway while he talked to the audience. “How do I afford this, you might ask.” the man stated and followed this question with the answer: “I’m in debt up to my eyeballs.” Millennials are less likely to be willing to get into debt, unless it’s student loan debt. They’ve seen the stress that too much debt can cause, and they’ve decided to live frugally to avoid as much debt as possible (or pay off the debt that they’ve accumulated). Sometimes, this is a forced choice, but many times, millennials just don’t like to spend money that they don’t have to. Some retailers like Macy’s have trouble marketing to the up-and-coming generation because of this frugality.
They Like Cash
While the first two points above are positive developments for the millennial generation, there is another point that is not quite so positive. Millennials like cash, as in stashing large sums of it. A recent study showed that even millennial millionaires keep an average of a third of their wealth in cash. While it’s good to have an emergency fund, this fear of investments keeps millennials from taking advantage of the power of compounding. To build an income snowball, it’s important to let your money work for you. It can’t do so when you hold it under your mattress. This aversion that millennials exhibit toward stocks and bonds probably arises from one of the formative events of their early lives: the Great Recession. Millennials saw people they knew well lose about one-half of their nest eggs in just a few months, and the experience stuck.
Outside of this final point, many of the money moves that millennials are making are actually good ideas. In some regards, young adults are ahead of where their parents were at a similar age when it comes to frugality and building wealth. While many older Americans and the federal government are still spending money hand over fist, the younger generation is working hard to build up wealth.