According to a PricewaterhouseCoopers (PwC) survey of 5,500 millennials, all born between the early 1980s and mid-1990s, only 24 percent of respondents demonstrated adequate financial knowledge. Almost 30 percent of millennials have overdrawn their checking accounts, demonstrating financial fragility, and more than 80 percent have one or more forms of long-term debt.
The PwC report suggests that millennials have less financial literacy than earlier generations. While the reasons for this decline aren’t clear, the PWC indicates that people in this age classification aren’t satisfied with their current financial situation, which makes financial literacy so important. As you work toward your bachelor’s of accounting degree online, this is an important generation to understand. Millennials are becoming both your co-workers and your clients (you may even be a millennial), and their habits will likely factor into your work and life.
Millennials could jeopardize their futures if they don’t learn how to manage money, make smart investments, and save for the future.
Logic Versus Emotion
Financial literacy starts with understanding how to manage money. According to LaTisha Styles, a personal finance expert interviewed by The Mint, many young investors can make emotional decisions instead of relying on logic. They may become excited when their stock picks do well, but they can feel defeated when they lose money. According to Styles, investments should represent logical decisions “based on the risk and potential return.”
Styles also advocated using financial tools, but noted that she only uses tools that “simplify [her] life.” Some tools, such as those that can help millennials plan for the future and manage their budgets, could prove useful. However, the PwC reports that 42 percent of millennials rely on alternative financial resources, such as payday and title loans, pawn shops, and rent-to-own services. While these tools may seem to be strategic, they can increase debt and cause a financial descent.
Frugality Versus Extravagance
Echoing Styles’ observations, the PwC report suggested that millennials often use future earnings to satisfy today’s desires. Placing the cost of a new television on a credit card and paying it off over several months, for example, makes less sense than saving up for the television over several months, then purchasing the television with cash.
Writing for The Motley Fool, Todd Campbell advised millennials to pay with cash instead of relying on credit. He asserted that a single negative event, such as a job loss or a medical emergency, can prevent consumers from paying off debt in a timely manner. Paying with cash can help millennials better budget their finances.
Additional financial education may also help. Working with accountants can help millennials better understand their finances and spend more frugally.
Whether you are a millennial or part of another generation, you can also choose to pursue coursework to improve your financial education. You can then apply this knowledge toward attaining a career in which you can help others improve their financial understanding. The U.S. Bureau of Labor Statistics (BLS) expects accountant and auditor jobs to increase by 11 percent through 2024, which translates to more than 140,000 new jobs in the marketplace.
Good Financial Habits Versus Time
Unlike education choices, some financial issues aren’t always within consumers’ control. Millennials may find themselves at a disadvantage in one respect with regard to credit. Campbell reported that credit scores factor in the length of credit history. Since no one person can control time, he argued that millennials have to boost their credit scores in other categories, which include the following:
• Payment history
• Ratio of balances to credit limits
• Mix of credit types
• Credit inquiries
Even though millennials can’t extend their credit history, they can still build a solid credit profile. For example, carrying credit card debt can become dangerous, but owning a house or a car allows you to build assets. Good credit can translate into gaining approvals for home mortgage or auto loans.
Saving Versus Spending
The PWC report reveals that only 36 percent of millennials have retirement accounts. 17 percent of survey respondents admitted to taking loans against their retirement accounts, and only 27 percent have sought financial help for savings and retirement.
Without help, millennials may not know how much damage they can inflict on their financial futures by not opening retirement accounts or by borrowing money from those accounts. Bankrate observed several financial missteps that millennials take, and the lack of a savings account was one of the top areas noted.
All types of savings — from retirement accounts to rainy-day funds — can help keep millennials financially secure. Millennials can also work with investment and financial advisers to correctly plan for their futures.
In an article for Investopedia, certified financial planner Mark P. Cussen suggested that the financial crisis of 2008 may have scared millennials away from savings and investment accounts. According to Cussen, millennials can be less likely to put their faith in stocks and bonds, preferring to keep their cash in checking accounts. Many may not trust advice from investment bankers or their parents; in a sense, millennials often prove more likely to follow their peers and not their elders.
Cussen further revealed that the investment problem is further complicated by millennials’ desire for goods which may lead them to spend beyond their means.
Changes and the Future
While these findings may paint a certain picture of millennials, this age group may have more advantages than they think. Jeff Reeves, writing for USA Today, asserted that while the “deck is stacked against millennials,” they simply manage their money differently from earlier generations. Reeves noted that many millennials choose not to use credit cards and care about their financial futures.
While millennials may face a few challenges as they gain financial literacy, getting help to meet those challenges represents an excellent first step. If you are interested in pursuing accounting jobs to help people manage their finances more efficiently, consider starting with an online Bachelor of Science in Accounting degree. Learn more about Maryville University’s online bachelor’s of accounting program to advance both your financial literacy and your capacity to help others improve.
PWC.com – Millennials & Financial Literacy—The Struggle with Personal Finance (pages 6, 8, 13, 14)
Mint – 7 Money Steps to Take Before 2021
U.S. Bureau of Labor Statistics: Occupational Outlook Handbook – Accountants and Auditors
The Motley Fool – Personal-Finance Tips for Millennials
Bankrate – 5 Worst Money Blunders Made By Millennials
Investopedia – Money Habits of the Millennials
USA Today – Deck is stacked against Millennial savers: Here’s how to succeed