Despite some knocks, millennials feel good about their finances

Despite facing significant economic headwinds in their coming-of-age years, including the dot-com crash, the Great Recession, and the COVID-19 pandemic, millennials – defined as investors who are ages 27 to 42 – have a solid financial foundation, according to a recent survey on millennial finances by Ameriprise Financial.

Six out of 10 (61%) within this age group feel good about their finances, the survey said. Among millennials who work with a financial professional, three-quarters (76%) feel good about where they stand financially.

But that’s not to say millennials are carefree, the survey pointed out. Nine out of 10 (90%) of those surveyed said that they are concerned about inflation, and eight out of 10 (80%) are worried about interest rates.

Millennial finances are also impacted because they’re in a busy season of life, often juggling careers, families and other responsibilities, the survey added. More than half of millennials (56%) reported feeling the pressure of balancing multiple financial priorities, which is markedly higher than older generations. Only 38% of Gen Xers and 23% of boomers said managing competing priorities is difficult.

Despite these complexities, most millennials think they are faring well relative to their age cohort. Nearly six in 10 (58%) said they believe they are doing better financially compared to their peers.

In addition, over half of millennials said one of their top three money goals is “increasing my income” (54%), followed by “paying down debt” (42%). In comparison, 66% of Gen Xers surveyed said “saving for retirement” was their top goal, and boomers reported that “protecting accumulated wealth” (55%) is their No. 1 priority.

When it come to millennial finances, what keeps investors in their 30s and 40s up at night?

Despite their overall confidence, the study showed that millennials may be losing sleep as they work to balance priorities that are competing for their time and money.

Millennial finances: Top concerns

Among top concerns about millennial finances:

1. Continued economic uncertainty. Investors in this cohort are worried about global issues affecting their financial situation over the next year. An overwhelming majority (90%) say they are very or somewhat concerned about high inflation, tax increases (84%), a recession (83%), and high interest rates (80%). These macroeconomic issues may be undercutting their outlook on their personal finances, the survey said. When asked to rank their top financial fears, 23% said “not being able to provide for my family,” 15% said “losing my job” and 12% said “not having enough money to retire.”
2. Burden of debt. As they take on more life responsibilities, millennials are also feeling the strain of debt. The study found eight in ten (81%) millennial investors have debt and more than half of them (57%) report it is impacting their ability to achieve other goals. Among millennials with some form of debt, 62% have credit-card debt and 32% have student loans. Additionally, nearly one in five (18%) have some form of medical debt.
3. Necessity of securing their own retirement. The study reported that only 29% of millennials have access to a pension compared to 48% of Gen X and 64% of boomers. This is a stark reminder that the retirement landscape has shifted over the decades, putting the onus on investors to save for their own retirements instead of relying on funds from their employers. And although they have several decades to go before retirement, only one-quarter (27%) of millennials believe that it’s completely realistic they will be able to retire at their chosen time, according to the survey.

The retirement landscape has shifted over the generations because boomers (64%) and many Gen Xers (48%) had access to pensions, compared to only 29% of millennials in the research, said Marcy Keckler, senior vice president of financial advice strategy and marketing at Ameriprise Financial. This means that the burden is on millennials to save for their own retirement instead of relying primarily on their employers.

Encouragingly, Keckler added, the Ameriprise study shows millennials are taking saving for retirement seriously. They started saving for retirement earlier than previous generations at an average age of 25, compared to age 28 for Gen X and 30 for baby boomers.

The good news for advisors is that millennials are hungry for advice to help them accelerate their retirement savings, she added. “This generation started working with a financial advisor at an average age of 27, compared to age 36 and 45 for their Gen X and baby boomer counterparts,” she said.

Advisors a boon for millennial finances

Among those who work with an advisor (34%), the results are powerful, Keckler said. Investors who have an advisor are:

• 31% more confident than those who don’t.
• Finding it significantly less challenging to balance multiple financial priorities.
• Feeling more positive, in control and successful about their financial situation compared to those without an advisor.
• More likely to say they are doing better financially compared to others their age.

Helping millennials build their retirement savings
Keckler then recommended four steps advisors can take to help millennials build their retirement savings:

Step 1: Review millennials’ tax situation to help them harness the power of tax diversification in retirement: Ameriprise’s research uncovered ways millennials can benefit from taking a deeper look at their tax situation, Keckler pointed out. According to the study, fewer than three in ten millennials (28%) consider tax diversification when investing for retirement, and more than one-quarter (27%) of millennials do not know the tax treatment of their investment accounts.

“Taxes can be complex; yet, this lack of awareness could cost millennials money-saving tax breaks and even result in penalties (contribution limits for certain retirement accounts depend on income) if they’re not careful,” she said.

In particular, Keckler added, advisors should evaluate with millennial clients whether opening a Roth IRA or converting their pre-tax IRA investments to a Roth account makes sense.

Many millennials may enter higher tax brackets in the future as their careers and earning power grow. “While converting to a Roth generates a current year tax bill, it could be less expensive based on millennials’ tax bracket today compared to where they expect to be in retirement,” she said.

Step 2. Ask whether millennials expect to receive financial support from their family: Survey respondents were asked if they expect to receive family support in the form of inheritances, college funds, down payments on a car or home, among other financial gifts. “We were surprised to see 41% of millennials say they are counting on financial help down the road,” Keckler said. “While it’s wonderful to see parents want to set their adult children up for success, advisors have a role to play in encouraging millennials to have a Plan B in case gifts don’t come through or don’t match their expectations in terms of size or timing. Millennials should control what they can control and save toward their own retirement and other financial goals.”

Step 3. Talk about how millennials can accumulate passive income. One-third (36%) of millennials are already receiving passive income from sources including dividends, rental income, and royalties. “This trend tells me they’re already thinking about how they can create a diverse income stream to fund their financial goals. Advisors can play a key role in helping their clients maximize passive income opportunities today and in retirement,” Keckler said.

Step 4. Focus on comprehensive financial planning: More than half (56%) of millennial investors reported feeling the pressure of balancing multiple financial priorities. “Millennials would greatly benefit from the power of a financial plan that provides specific action steps to meet their personal goals while addressing their worries and the challenges presented by the broader economic environment,” added Keckler.

Millennials surveyed also raised their hands to say they need advice on the following: investment strategies (18%), retirement planning (18%), taxes (16%) and estate planning (14%). These are all key elements of a sound financial plan, she said.

The 2023 research was created by Ameriprise Financial Inc. and conducted online by Artemis Strategy Group from January 19 to February 14, 2023, among 3,518 Americans ages 27–77. Millennial respondents have $25,000 or more in investable assets, and Gen X and boomer respondents have $100,000 or more. To ensure sufficient response sizes for additional analysis, Ameriprise oversampled investors who identify as millennials.

Ayo Mseka has more than 30 years of experience reporting on the financial services industry. She formerly served as editor-in-chief of NAIFA’s Advisor Today magazine. Contact her at [email protected]. 

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Ayo Mseka has more than 30 years of experience reporting on the financial services industry. She formerly served as editor-in-chief of NAIFA’s Advisor Today magazine. Contact her at [email protected].