Financial challenges Millennials face and how to beat them

Last weekend Monevator linked to, and discussed, a Financial Times article on money-saving tips between a Gen X’er and a Millennial. The post got me thinking about the financial challenges facing Millennials. As I mentioned over on Monevator, I think things are financially difficult for Millenials. Unfortunately, however, that conversation then tends to go down one of two lines. Either older generations raise their arms in anger: “don’t you know how difficult it was for me!”. Or younger generations blow their lids and blame their ancestors for all their hardships.

Neither reaction is helpful in dealing with the challenges Millenials face. The reality is, blaming other people won’t make things better. Likewise, dismissing these issues means that we collectively lose out on debating how we can overcome these challenges.

As I’ve talked about before: today the greatest ever time to be alive. But, I think the important thing to remember is not that life today is not more or less difficult than before; life is different. Hardships that our parents and grandparents would suffer have evaporated away. Only to be replaced by new challenges. That means that some things that worked in the past are no longer quite as effective. We need to update the tools we use to build our financial future.

So today I’m going to look at some challenges for Millenials and they can go about making the best out of them. Now do bear in mind this isn’t exhaustive. Society is, as always, rapidly changing. I couldn’t write about every change and hope to not put you all to sleep. So there are things, that you may rightly think are missing. That’s not to say I don’t think they aren’t important. But, I’ve looked to write about some changes that are perhaps less talked about or to discuss them in a less-conventional light.

The challenges

1. The death of the DB pension

Very few Millenials have the benefit of a Defined Benefit (DB) pension. Most DB schemes have been shuttered over the past 20-30 years. Replaced by a combination of employment and private Defined Contribution (DC) pensions.

The reality is, DB schemes are generally speaking much more generous than their DC counterparts. But for me, there is an even more important element in the transition from DB to DC that is overlooked. That is, in DB schemes, people were in effect outsourcing their investment and retirement planning – the pension scheme did it all for them. It was entirely possible for a steelworker to never think about saving and investing and still be sure that they would have a financially secure retirement.

With DC pensions that is not the case. It is incumbent on everyone – from Wall Street bankers through to street sweepers – to actively engage in managing their investments. Do I think that is sensible? No, it’s bloody stupid. But that is the world we are in now. That means, every Millennial should know exactly how much is going into the pension, how it’s being invested, where it’s being invested and what that means for their retirement. It means, working out if you need to be putting away more money and how that savings pot can be converted into a future income.

Once upon a time, it was fine (though highly discouraged) to have a laugh about not being ‘good with finances’. Now you cannot afford to not be ‘good with finances’.

2. The importance of capital

Capital has always been important. If you could summarise Thomas Piketty’s famous tome (with the shocking title) Capital in the Twenty-First Century in one sentence it might be: having lots of money makes it easier to have lots of money. In a way, that’s a universal truth. But we don’t have to go far back in time to when Western Governments (or autocrats) could expropriate your assets at will. Likewise, expropriation is a real threat to billions of people even today.

We needn’t travel very far to a time when many governments would pursue inflationary policies that could quickly wipe away the value of large stash of cash. Today, most modern economies have independent central banks that explicitly target managed inflation. Together, these two things mean that a pot of capital today is the more secure than at any other point in human history (although, we can never be sure that a catastrophic event is around the corner to wake us from our bliss). It also means that those who have capital now can rapidly accumulate more of it than ever.

Is that a good thing? That’ll depend on how you feel about inequality, capitalism, socialism and politics. But it’s a fact of life. So what can you do about it? Ironically, we can learn a lot from the poorest people in the world.

If you go to many ‘developing countries’ (I don’t like that phrase, but that’s for another day) you’ll often find half-built houses. The reason is not that they are too lazy to finish their homes. It’s that bricks are like a bank account. When they’ve saved enough, they buy a brick and add it to their home. They do this because a house can’t be stolen by the government or criminals nor inflated away by a dictator.

Millenials need to adopt this brick-by-brick strategy. Each month we need to squirrel away want we can. Instead of bricks, we stick the money in a brokerage account and buy a cheap global investment tracker fund. It might only be a brick at first. But one day it might become a course each month. Then maybe even a wall. Step-by-step we build our financial future. But until we start, we can never hope to finish.

3. Student loans

There’s not much debate about it: the cost of going to university has rocketed. Since I left uni nearly a decade ago, the cost has more than doubled. Graduates are left with over £50,000 of student loans (and it can be even more in the US). I’ll avoid the debate on tuition fees (at least for now). For those thinking about going to university, or for parents with children thinking about going to university, I would really encourage thinking carefully about whether it is the right thing. The math has changed. It used to be that going to uni was a ‘no-brainer’. But the equation has changed.

Firstly, student loans are an immense drag on finances. This is exasperated by being at the worst possible time (as we saw in point 2, getting capital as soon as possible is very important).

In the UK, graduates get 9% added to their marginal tax rate. It might not seem much, but it is a large amount of money to lose every month (even at the UK average, that’s 1% of earnings, and as a graduate, I’m sure you’d hope to earn more than average). If you earn less than £60,000(!) you won’t even be repaying the principal (on a debt of £50,000 under plan 2). Sure, you will have your ‘debt’ wiped after 30 years, but that is 30 years of having somewhere between 1% and 6% knocked off your savings rate. That is, putting it mildly, going to really set you back in building a savings pot.

Secondly, it is possible to pursue a number of professions without needing a university education. Taking my profession as an example (accountancy), many firms now offer school leaver programs (including one of my old employers) as well as there is a number of professional qualification paths that don’t need a £50,000 trip to a red brick. If I had one bit of career advice, it is to get a profession. Be that as a doctor, engineer, lawyer, accountant, carpenter, architect, plumber, programmer, surveyor. Most professions don’t need you to be academically minded; many don’t need a degree.

Put those two things together: uni is more expensive and it’s possible to go down your chosen career path without going to uni; it means it’s not necessarily a straight-forward choice. Going to university is still the right call for a lot of people. But it might not be for a growing part of society.

4. Winner takes all

I may be talking total nonsense, but I perceive a growing ‘winner takes all’ mentality in society. We see it in the intractable attitude of either ‘side’ in the Brexit debate or in discussing Donald Trump. One side is the winner – one is the loser. The loser needs to shut up and like it or lump it. The winner is entitled to ignore the losers grumblings.

It’s infected our workplaces – you win the rat race or you are a career failure. The days of plodding along as Joe Average are dwindling.

Of course, that’s, in many respects, a bit of hyperbole. But as sure as some days we are winners, we will be losers. We learn in both winning and losing. Listening to and learning from others is a massively under-appreciated. Just speaking from personal experience, I’ve learnt a great deal from starting this blog. Particularly, where readers have picked up on things I’ve got wrong or overlooked. It’s not really even about being right or wrong, or winning and losing. It’s about a mindset of being open to being wrong or failing. And what is more “If you can meet with Triumph and Disaster; And treat those two impostors just the same” you’ll be a man (or woman).

Over to you

What do you think are the biggest financial challenges facing Millenials? Do you agree with the challenges I’ve written about? Or do you think I’m talking utter b*llocks?


All the best,

Young FI Guy

[p.s. I would say that this to be the most difficult post to write so far on the blog. The idea started with 5 challenges and 5 opportunities. But it became clear that would be too long, so I thought I’d save the opportunities for another day. I then got really bogged down. I couldn’t even finish my ‘5th challenge’ on housing costs; I felt like I was just writing the standard tropes. Maybe I’ll revisit that particular issue in another post. I think the advice I’m setting out is still helpful – although maybe it’s a bit cliche and a bit abstract. Maybe the issue with this post is that there isn’t a clear message or theme. I know you’re probably “not meant to say this” but sorry if you read this post and think it’s sh*t.]

12 thoughts on “Financial challenges Millennials face and how to beat them

  1. I think its the same as its always been. Every generation has its own set of battles to overcome.

    Todays generation have been mollycoddled too much and not been allowed to fail. It’s only when they leave school and enter the real world when the harsh reality hits them, then they’re not equipped to handle it.

    1. Hi Mr Fu, that’s right that there is always battles to overcome. I’m not sure I agree on the mollycoddling. I’ve been reading (and seeing) the immense pressure put on teenagers in their recent exams. There’s so much stress on them to ‘not fail’ and that not doing well in your exams is a tragedy. It feels (to me anyway) to suck the joy from learning. And that exams are there for exam’s sake. That’s a shame because it’s teaching children the wrong lesson: you don’t stop learning when you’ve done your exams.

  2. Im going to go against the grain and say we are far too obsessed with owning houses and house prices in this country.

    I actually think millennial would be better investing and saving money first than saving for a house deposit. Paying rent in old age is irrelevant if you have the funds to cover it and may actually be preferable as you’re not fixed to a particular place

    I almost sold my house last year having had a light bulb moment two years ago that my wealth is far too concentrated still in my house (about 50% though changing this now)
    There’s an argument whether your home is even an investment but if it is then I find it mind boggling that people who don’t want to invest because they will lose money seem blissfully unaware that their property is in effect a highly concentrated asset. The issue is we’ve grown up (I’m 37) in an era of virtually uninterrupted house price growth but I’m not convinced that’s going to continue or if it is it will be muted maybe 1 or 2 %. Shares have far more chance of outperforming imo

    1. I agree Fatbritabroad. Ermine and UKVI recently talked about the returns on Uk housing and our British obsession with it. I know that both Ermine and The Investor have copped some flak over the years for not being cheerleaders on housing.

      As to your last point, I hope that shares and ‘investing’ outperform housing because I think it would not be good for our economy in the long-run if buying a home outperforms investing capital to build and develop new things.

  3. Hi. We are living in a time where the rate of change is unprecedented and most are struggling to keep up. Also, the world’s population is bursting the planet’s seams and that explosion hasn’t yet run out of steam, so in the millennials’ lifetimes, they’re not only going to have to deal with ferocious competition, but the pressure will mount too. Understandably, as we hurtle towards 10 billion and the reality dictates everyone will have a worse life than their parents, by dint of being forced to share, empathy will be in short supply.

    What millennials can do then is to realise this as fast as possible, recognise that almost everything that was ‘known’ before may not apply any more and so think for themselves all of the time. As evolution is set to fast-forward, those who survive will be those who can adapt the fastest to changes in their situation; one thing still possible is access to an incredible store of accumulated knowledge at the cost only of your time and a broadband connection. The wise should educate themselves then at every opportunity, so they have the tools to be independent in the skills to trade for their needs.

    It’ll be akin to living in a country where endless wars can blight whole lifetimes (sadly even today there are significant areas of the globe that still qualify) and the people there just have to learn very quickly which things are are really important in life, honing in on signals while ignoring the wall of sound that is the distraction of noise.

    1. Hi FI Warrior, I’m not quite as pessimistic on global population. But you picked up on the #1 on my opportunities list which is the (unbelievable) accumulated knowledge available to everyone. The way I say it to people is to think that over the last 20/25 years we’ve managed to create a world where you can access the entire knowledge of human history, for free, anywhere in the world (including the depths of Siberia). That’s remarkable and an unprecedented opportunity.

  4. Hello
    Interesting post. I agree entirely with you about this being the best time ever to be alive as a human being. One thing that has changed is the availability of good financial information which was not possible 30 years ago, when I was 20. Today it is possible to get a good personal finance education by visiting sites like Monevator or moneysavingexpert, for example. Another thing widely available now and near impossible a generation ago was the fantastic geographic mobility that we enjoy today. I you have marketable skills in a country different from your own you can just move and work there for a while but you do not have to lose all contact with your friends and family. You can be in touch by social media, Voip telephony and cheap flights. Regarding housing it is true that it is a difficult issue for the younger generation but if you embrace mobility and are not that interested in having roots renting can be a good option, and certainly it is a motivation to get on the investing ladder. Houses are a mediocre form of investment IMHO. Finally University is becoming a liability, particularly for those burdened with debt and issued with a degree in other subjects than STEM. I still think that going to Uni is a great way of expanding your horizons but only if you have other sources of income to support you in the case of the humanities or if you are after a technical/ scientific career. But many other options are open for getting into a profession which do not requiere an University degree as you say.
    I hope that you get another post on this subject, as i find your insights sharp and balanced.

    1. Hello Roberto – thanks for commenting.

      I completely agree with everything you’ve said. Like FI Warrior above, you’ve touch on two items in my opportunities list #3 the accessibility of financial services to everyday people and #4 the opportunity to work and life in different places, cultures and environments.

      On the former, it’s never been easier to open an investment account and find out what to invest in. The days of investing in the market being a closed shop are long gone. You can easily avoid Darien Schemes or South Sea Companies. And the much-maligned regulators offer you some levels of market protection. There’s a wealth of information about investing and saving, and it’s all free.

      1. From all these conclusions so far, it would suggest that intelligence and mental strength (resilience) will be much stronger deciding factors than before, shaking out the populace on how they measure up on this spectrum. So if you can’t take total responsibility for yourself from the moment you leave the parental nest, it will be sink or swim. What with society breaking down to the point where community, the state and family are all diminishing by the day, if you’re not lucky, really supported or smart, you are going to have a subsistence life. The ruling elite will always have a sweet existence by definition, whilst their lackeys will be Ok through serving them.

        Practically therefore, as important as absorbing all knowledge like a sponge, will be building formidable, lifelong bonds with a select number of individuals as an insurance policy for survival. Essentially that’s just the essence of humanity going back to caveman times. It’s sad that with all the wonders of the 21st century we have, what it has done for most of us is make us revert to the selfishness of our basic, primate, primitive state. Hominis cretinis.

  5. Another great post YFG. I think we are of comparable age based on some of your other posts, certainly we would have been at school the same time, if not the same 6th form. Either way, I class myself as a millennial.
    I completely agree that it’s difficult to make any comment on generational difficulties without sounding like trite tropes. I have essentially 3 thoughts:
    1. The world is a much better place than ever before. Completely agree today is the best time to be alive. Equality of rights, social support services, healthcare, nutrition, relative global peace.
    2. The world is a much more complex place than ever before. Jobs for life are few and far between, careers for life are few and far between, pensions are no longer an assured income, property ownership is a challenge to achieve.
    3. Every generation loves to moan. The younger about the older, the older about the younger. Everything old is new. See the quote ascribed to Socrates- “The children now love luxury. They have bad manners, contempt for authority; they show disrespect for elders and love chatter in place of exercise.”

    1. Hi FIREShrink,

      I like point (3). Wouldn’t it be a sad world if the older generations weren’t able to say: “Youngsters these days have it much easier”? I’m very hopeful that when I’m an old man I can complain about how easy the yoof has it.

      p.s. thanks, as ever, for linking to the blog; hope you are having a good weekend.

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