Little money, lots of debt and limited financial knowledge. That’s the portrait that’s being painted of the millennial generation.
According to a new report from the George Washington University Global Financial Literacy Excellence Center (GLFEC) and PricewaterhouseCoopers, millennials are making poor monetary decisions, which is putting them at risk for a glum financial future.
The report, named “Millennials and Financial Literacy: The Struggle with Personal Finance,” depicts millennials — which include those born from the early 1980s to the early 2000s — as the least financially literate generation. Considering the fact that 27% of the demographic uses the assistance of financial professionals, it’s easy to see how this illustration came to be.
So why has Generation Y started off on such a bad financial foot?
A few factors can be attributed to the failure of this generation to properly manage their cash stance.
For starters, they’re a young bunch, and they just haven’t had the time to experience sound financial decision-making. They’re also coming out of college and university with a boat-load of student debt, not to mention slim-pickings when it comes to finding a decent job that pays well.
Couple these factors with a sheer lack of savings, and you’ve got a generation of young Americans who just can’t get ahead.
Is instant gratification a factor?
Yes. Millennials are also gluttons for instant gratification, largely because they were pretty much born with a mobile device in their hands. They’ve grown up not knowing anything other than being able to find out whatever they need to know in seconds — thanks to digital technology.
That can be a dangerous thing, especially with the dozens of alternative banking options that are popping up all over the place, promising quick loans with easy applications and near-instant approvals and deposits.
Millennials want it, and they want it now. Whether it’s to find out what the score was in last night’s baseball game, or to get access to quick cash to pay for those concerts seats in the VIP section, they expect their needs to be fulfilled on the spot. And that’s sparking an epidemic of quick cash advances that are subliminally putting these millennials in more of a dire situation than they realize.
Over the past five years, 42% of millennials turned to these alternative lenders as a means to get their hands on some fast cash. Whether it’s a payday loan, a tax refund advance or an auto title loan, millennials have been quick to pounce on them.
But they’re not taking the time to find out if the quick decisions they’re making are the right ones. In fact, most often they’re the wrong ones.
What if there was a financial emergency?
Millennials often spend money that their bank accounts just can’t support. In the meantime, their debt continues to mount, piling massive interest on top of it all.
It’s a black hole that’s tough to climb out of. Without the necessary financial education, this at-risk group is not exactly being primed for a healthy financial future.
Nearly half of Generation Yers don’t think they’d be able to come up with $2,000 in a month if an urgent expense popped up unexpectedly — another startling fact documented in the George Washington University report. That would explain why many of them tap into alternative funding resources for the fast cash they need to cover these expenses.
Overusing these alternative services is the gateway to financial chaos. Sure, they offer cash on the spot, but they also come attached with sky-high prices to use them. Even if millennials pay off their payday loans on time, they’re still looking at ridiculous interest rates, some as high as triple-digits when these fees are annualized.
While these types of quick loans might help to provide quick financial relief, the amount of money that’s being spent for such convenience hardly seems worth it. And considering the lack of adequate debt management that runs rampant in this generation, they’re only boosting the odds of spiraling into debt faster than they can make money.
So what’s a mystified millennial to do?
Millennials need to embrace their not-so-knowledgeable stance in the world of finance — it’s okay to not know things. The logical steps would be to take a basic course or two on personal finance and to book an appointment with a recommended financial advisor.
There’s no shame in asking for a little help, and if that means getting a solid financial start in life, it’s well worth it.