Millennials have it rough
The price of college has risen dramatically over time, far exceeding the inflation of wages and the rest of the economy. But now, we are going to take a look into the real effects of the loans the Millennial generation had to take to pay for a college education.
What you may not know is that the average American millennial isn’t doing so well financially, compared to previous generations on average. In fact, the net worth for an average American millennial is $8,000, which makes them #1 on the leaderboard of generations for financial struggle. Most American millennials hold about $5,000 in their savings account. One vacation later, that cash is gone. But what is even more surprising, is that 58% of millennials with a savings account hold less than $5,000. Millennials don’t have much wiggle room in their budget, because their income levels are significantly lower than generations before them, when they are adjusted to inflation. A whopping 20% lower salary on average compared to the baby boomers before them.
This problem was a result of a large amount of financial pressure put on millennials. The rise in wages since 1970 hasn’t inflated at the same rate as prices for housing, and other basic essentials. Millennials’ financial insecurity may also have to do with the recession that hit right as they became young adults. But the most significant factor, one could argue, is that almost half of the generation holds student loan debt. Student loan debt is one of the most major contributors to millennials being worse off, because it affected them at the beginning of their self-sufficiency when they are least educated about how much they should take in loans. It also follows them through the rest of their life, requiring them to pay thousands in interest with no escape.
But it’s not all bad. In fact, millennials are said to be one of the most practical savers in comparison with other generations. And a majority stick to a routine budget and have a more disciplined mindset when it comes to financial planning.
Knowing this information, it may come as a surprise that most millennials see financial success as being debt free. For a generation with such high standards for their own budget, why would their goal simply be to be debt free? With that mindset, they could go far financially, so it seems like a low bar to achieve. But for a generation dug deep into a hole of debt, having that weight lifted off their shoulders is a large accomplishment.
Sadly, for most, this is not the reality. Millennials may spend their entire lives in debt. If not student loan debt, many millennials will find themselves in debt to their parents and other family members. Borrowing money from their family is a common occurrence for more than half of the generation.
And what may be the topping on this cake of bad news; most millennials delay or deny large life milestones like buying a home, getting married, or having kids for the sake of their financial security. This puts a large dent in the progression of their lives, and it may put a dent in the emotional “wealth” of their lives as well. And as sad as that may be, it is the reality for an entire generation of Americans.
Most Millenials were told that it was safe to take 100% of your first year’s salary in student loans. So if you expected to have $40,000 annual income after college, you were recommended to take $40,000 or less in student loans. Clearly, this wasn’t the best way to think about student debt. By my own research, I have concluded that it is more reasonable to take 50% of your first year salary in student loans. As an example, let’s take a Civil Engineer earning $60,000 annually, and paying off 50% or $30,000 over 10 years. Monthly payments would be around $340. Even by taking 50%, this person would pay $11,000 in interest. Can you imagine if that number doubled? Tripled? Sadly, this was the reality for many Millennials.
No one wants to be stuck with a lifetime supply of student debt. And as the problem worsens, education on student loans and debt has become increasingly necessary, though it isn’t taught at the high school level often. This new generation is the perfect one to find a solution to this problem by educating themselves on the issue and figuring out how to learn from previous generations.