A generation heavily burdened by student debt and taking longer to reach financial independence, millennials are often blamed for not managing their finances well.
But this generation is financially savvier than many people think, according to Morgan Stanley’s chief economist Ellen Zentner and author of a recent New York Times’ op-ed on the topic.
“We’ve been able to compare my generation (Generation X) to the millennials,” Zentner, a member of Generation X, told Yahoo Finance’s On the Move. “We do find that millennials are saving more that’s going into financial assets than my generation did at that same age.”
When it comes to financial assets, retirement assets are where millennials — currently between 25 and 39 years old — are taking the lead. Data by Morgan Stanley reveals that when it comes retirement savings vehicles such as 401(k)s, the average millennial holds $6,933 while Generation Xers (currently 40 to 54 years old) held an average of $3,970 at the same age.
In the op-ed, Zentner argued that the data points were “clear evidence that millennials, born between 1981 and 1996, are saving more aggressively for retirement than Generation X did at the same ages, 22-37. And that might put them in better financial shape than many assume.”
Gen X has more real estate wealth
Saving more aggressively for retirement is not enough for millennials to accumulate as much wealth as older generations, but Zentner argued that it’s a good first step before following older generations into the housing market.
“We're just now seeing them (millennials) jumping into the housing market to buy a home much later than [Generation X] did,” Zentner said. “We had a much greater amount of real estate assets than millennials did at the same age.”
With millennials taking on student debt and living with it since the financial crisis, it's only now that they've been able to reduce the amount of student debt, due to the strengthened labor market and rising incomes.
But the late start doesn’t mean millennials can’t catch up. Millennials and Gen Zers saw large increases in the homeownership rate in the first three quarters of 2019, according to Zentner, and future monetary policy could help them further.
“Keeping the labor market as tight as possible interest rates as low as possible,” Zenter said. “Those are all the kinds of things from a monetary policy standpoint that the Fed can be doing to try to encourage homeownership and affordability.”
‘Student debt is a big burden’
Millennials have got a boost from a continued rise in 401(k) plans offered by employers, with more than 90% of U.S. major employees being eligible for the employer’s defined contribution plan, according to 2016 data by Plan Sponsor Council of America, a nonprofit for employer-sponsored retirement plans. But student debt is taking its toll.
“Yes, there's auto enrollment and 401(k)s and they're putting more of their income toward financial assets, but they do have an incredible amount of debt,” Zentner said.
American borrowers hold more than $1.6 trillion in outstanding student debt as of November 2019, according to data compiled by the Federal Reserve Bank of St. Louis. The average student loan balance in 2019 for millennials was $34,504 and had the second highest increase of 8% from the year before among generations, according to data by Experian.
And student debt is a key reason millennials delay milestones like buying a house. Zetner thinks employers should step up to help out.
“I think employers can take a much greater step toward also sharing in that burden,” she said. “They want an educated workforce — help pay for it.”