Many Millennials are carrying high debt loads that are limiting their financial capabilities in a variety of ways. For example, all-cash purchases continue to dominate the U.S. housing market, and first-time homebuyers’ share of home sales has been stuck near multi-decade lows despite mortgage rates remaining at historically attractive levels.
Further, a study by the Financial Industry Regulatory Authority (FINRA) found that nearly half (46 percent) of surveyed Gen-Y adults are concerned about their current debt load, and 43 percent have had to turn to pricey non-bank forms of borrowing in the last five years to help cover monthly expenses. More than a third (34 percent) of surveyed Millennials also said that they have engaged in three or more “costly credit card behaviors” over the past year, and not even a quarter (24 percent) of respondents were found to have a high level of financial literacy.
Since long-term issues can often wind up taking a back seat to immediate financial needs, it is not too surprising that only about four in ten surveyed Millennials said that they are currently saving for retirement, very low when compared to older generations. However, just because young adults have a tendency to be shortsighted when it comes to their personal finances that does not necessarily mean that they will not respond well to initiatives intended to nudge them in the right direction.
Just look at the widespread success of the automatic enrollment and auto-escalation features being increasingly incorporated into employer-provided 401(k) plans. A new Wells Fargo report, for instance, showed that Millennials have benefited the most from automatic enrollment since this plan feature mainly affects new hires. The researchers added that “because automatic enrollment has such a big impact, it sets the stage for how employees save throughout their careers by leveraging their biggest asset — the power of compounded savings over a very long period of time.”
Sources: FINRA, Wells FargoPost author: Charles Couch