The term Millennial is bandied around a lot these days.
But what does it actually mean?
Millennial refers to the generation that began to reach adulthood at the turn of the century. People who were born roughly between the early 80’s and late 90’s, so will now be aged from mid twenties to early forties.
People in this age group face particular financial challenges that are different from previous generations. In this article we look at:
Whilst there are many financial challenges that face everyone, irrespective of age or generation, there are some that are particularly evident amongst Millennials.
Let’s take a look at five of these:
Millennials were the first generation in the UK to need student loans to pay for university tuition fees. This meant that they began their working life in debt, and many are still repaying that debt.
Unfortunately, being in debt tends to lead to more debt. Existing debt repayments make a big hole in your monthly income, which means that you may then need to take out further loans to finance expenditure in other aspects of your life.
The problem is that when you start your working life in debt, that becomes your normal way of living. Many Millennials are somewhat intimidated by the world of finance, so are reluctant to seek financial advice or try to see the bigger picture and think more long term. Only around 24% of millennials are confident in their knowledge of financial issues such as mortgages and the stock market.
This may also mean that you avoid thinking about credit scores, and may not know what yours is or even how to find it. But your credit score can impact on many areas of your life, including your ability to take out more finance when you need to. We looked at this topic in our recent article Just how healthy are your finances?
Many Millennials do not have the luxury of the “job for life” that was expected in previous generations. Many jobs are temporary – the gig economy – and many of these jobs do not pay as well as a more permanent job.
Even taking into account permanent jobs, millennials are likely to job hop and will hold an average of 12 jobs during their working life. In this respect, they demonstrate less loyalty to employers than previous generations, with many not planning to stay in their current job for more than a couple of years. Job hopping is often driven by wanting more money, but job location and the ethics of the employer are also significant factors.
This lack of permanence in terms of staying in one job for a significant period of time can cause ups and downs in the finances of Millennials, many of whom are in the habit of living from month to month rather than having longer term financial goals.
Previous generations have benefitted from being able to take out large mortgages with low or even no deposit required. But after the financial crash of 2008, mortgage lenders have gradually tightened up on mortgage lending, and by 2020, many were also demanding deposits of 10-15% of the value of the property. This put property purchase out of reach of many Millennial buyers, particularly when combined with the shortage of new homes coming onto the market.
This means that many Millennials are renting homes rather than buying them. But with many rents being high, this prevents them being able to save anything towards a deposit for their own home.
Many Millennials are also still living in their parental home. Approximately 42% of UK adults up to the age of 34 were living with their parents in 2020, compared with 36% in 1996.
Linked to the concept of living from month to month is lack of savings. With the combination of student debt and, sometimes, irregular or low paid work, savings are a habit that many Millennials have not acquired. There does not seem to be enough spare cash to begin to put aside money for the future.
This mindset can also mean that Millennials are not making provision for any pension over and above the state pension. It all simply feels too far in the future to worry about now, particularly when there are more pressing financial needs in the present.
Many Millennials also do not have insurance for various aspects of their lives. For example life insurance, private health insurance or critical illness cover. Previous generations may have had some of these insurances as part of their employment benefits, but this is less often the case now.
Whether you want to pay for any of these additional insurances is a matter of personal choice. But it is important to have an awareness of their potential benefits, and also to realise that taking policies out whilst you are relatively young and healthy is likely to be a lot cheaper than leaving it till later in life.
Let’s now address some of the things that you can do to face the five above challenges:
Do all you can to increase your debt repayments and start paying down your debts. This may mean taking on extra work or finding some other way to increase your income.
But once you can do this, try “snowballing” your debts. Choose one debt to pay off, perhaps your smallest debt or most expensive debt, and throw everything you’ve got at it. Once you manage to pay that off, use all the money you were paying into that debt to start tackling the next on your list. And so on. As you pay off more and more debt, the momentum will grow – just like a giant snowball rolling down a hill. Eventually the snowball will reach the bottom and explode.
You can pay off your debt. It will take time and effort but will be well worth it.
It is worth spending time learning more about the world of finance and how everything works. Having this knowledge will give you more confidence about financial matters which can help you to make sound financial decisions. The autumn is a great time to start a new evening class or online course that may be helpful to you.
Also make sure that you know your credit score and check it regularly for accuracy and errors. You can do this through one of the three main Credit Reference Agencies in the UK – Experian, Equifax or Transunion.
Whether you are employed or self-employed, try to take a more strategic approach to your next move. Consider the stability of the job and any additional financial benefits (e.g. pensions, insurances, discounts etc) as well as the salary itself.
And if you do move jobs, why not use the changeover as an opportunity to start some regular savings, however small?
Not everyone does want to own property, and this is a completely valid personal choice. Some Millennials prefer to rent, believing that it enables them to enjoy life, not have to work hard just to pay for a home and its ongoing upkeep and maintenance.
The key thing is to make a conscious decision about what you really want to do, and feel happy about whatever that decision is.
If you do want to get on the property ladder then between now and the end of 2022 is a great opportunity. In the Budget earlier this year, Chancellor Rishi Sunak announced the return of the 95% mortgage. So if you are hoping to buy a home, you will need to pay 5% of the cost as a deposit, compared to the 10-15% we referred to earlier. This makes the prospect of home ownership a much more realistic one for many Millennials.
It is never too late to start saving. The best way to get started is to open a separate savings account and set up a direct debit to pay a small amount of money into it each month.
If you get any unexpected money such as bonuses or gifts, pay some of this into your savings account. Also find other ways to add to your savings whenever you can, such as giving up one luxury each month and saving the money instead, or having savings jars for various purposes around the house.
If your employer has a pension scheme, make sure that you are in the scheme. If possible, make additional contributions to the scheme. Not only do these boost your pension fund, but they are usually tax free as well.
It is also worth looking into various insurance schemes to see whether or not you want to start one up. You may need to take financial advice on this to find the right combination for you, as some can also double as savings plans, but don’t be swayed into taking out policies that you are not sure you need.
We hope that this article has provided food for thought about how to tackle the financial challenges faced by Millennials. Our aim is to regularly feature articles that will help you to get the most out of your money. We also offer a refreshingly different approach to our 24 month loans that may be able to help you get your life sorted.
Do check in again soon with us here at Munzee Loans.
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