Millennials, the generational cohort born between 1982 and 2004, were dealt a bad hand.
They entered a job market crippled by an economic crash, watched home values diminish, and racked up a heap of debt. Their workplace experience is vastly different from what their parents or grandparents experienced — once-prosperous jobs have been replaced by low-paying wages and scarce benefits.
But it isn’t all doom and gloom. Yes, times are tough. But time also is on their side.
In the following pages, financial advisors gauge the economic picture and dole out advice for millennials, a young Bellevue couple offers first-hand insights into how to survive in this challenging environment, and we’ve assembled a guide to help millennials navigate some of the stickiest and most confusing financial subjects.
The Recession Generation
After their job searches in Portland proved futile, University of Oregon graduates Devin Santamaria and Ashley Petroff moved to Bellevue on a whim. Petroff, 23, had been working with the Dahlin Group architecture firm while attending school and was sought out by her supervisor to apply for a position at the firm’s new Bellevue office.
It wasn’t a guarantee, but Bellevue became the couple’s North Star for better opportunities. They arrived on July 12, crashed on a friend’s couch on Capitol Hill for a few days, and searched for an apartment while living off credit cards.
Santamaria, 22, responded to a recruiter’s LinkedIn message and got his current job in sales at Synology America Corp. By early August, both were working full-time.
“It was a crazy week,” Petroff said. “But it was fun. It was nice to just go.”
They landed in a fairly upscale apartment complex in downtown Bellevue, within walking distance of Petroff’s office. Their 11th-floor studio is furnished with IKEA pieces. It’s small, but homey and polished.
Santamaria and Petroff, who plan to marry this fall, live a comfortable life with the ability to pay rent and other necessities. But that’s it. They can’t afford to buy a house, save money for retirement, or start a family.
Like many of their peers, those things are just out of reach for the couple.
What’s In A Name?
Millennials can be split into two groups — those in their late 20s and mid-30s, who already were in the workforce when the last recession hit, and those a bit younger, who came into the workforce as the economy was recovering.
Santamaria and Petroff represent the latter.
Millennials just starting in the “real world” often are pigeonholed from a financial standpoint, because they earn much less than they would have 10 years ago, and are coming into the workforce with heavy student loans and higher living costs, said financial advisor Bobby Reamer of MyICON, a financial advising firm in Kirkland. But the economy also is stabilizing and growing, so they’re thinking about how to optimize investments and real estate. The first group is recovering from the credit crisis in 2008 and is also grappling with lower wages, Reamer said.
“If (older millennials) got a job during that time period, they typically had a lower starting salary, they typically lost a lot of money on a house, they typically are dealing with a lot of challenges that have put them at a disadvantage financially. For the last probably nine to 10 years, they’ve been playing catchup,” Reamer said.
Fun(?) Fact: Millennials have accrued at least 300% more student debt than their parents.
Roger Reynolds, co-founder of Coldstream Financial Wealth Management, said the recession was like the opening act for many millennials. It set the tone for their 20s and 30s and is now impacting their ability to advance in life.
“This generation is being (compared) to the generation that survived the Great Depression more than any other generation,” Reynolds said. “The Great Recession impacted them as much as it would have in the 1920s. (Some) saw their parents losing savings and retirement, losing homes. This ideal childhood is breached. There’s this lack of a sense of permanency. There’s a lack of pursuing traditional corporate jobs to pay for school bills to get their feet on the ground. There’s no confidence in that.”
Most generations have debt, but many millennials have amassed tens of thousands of dollars in debt in their early 20s, leaving them with fewer options for work and their lifestyle.
Santamaria and Petroff earn a gross annual income of roughly $95,000 between the two of them, but their financial pie is quickly consumed by debt and the high cost ofliving associated with this area.
The pair have about $50,000 in student loans, about $13,000 in credit-card debt, and a $500 monthly car lease Petroff is tied to until her term is complete. Their studio apartment is running them about $2,300 with parking and storage — plus insurance, utilities, and groceries. In total, their monthly expenses run about $5,600.
In review, Santamaria said he wishes he’d been more cautious with his student loans by paying back the residual.
“I used a lot of the extra money on enjoying myself in college, filling out the gaps in between the money I’d gotten from work while I was in school,” he said. “I wasn’t going to work myself to death in college. I just wasn’t. In hindsight, maybe it would have been worth it, but right now it’s not the end of the world.”
The couple’s main objective now is to save reserves for emergencies. Petroff plans to pick up some extra work as an Uber driver to put toward savings until she can return her car. Santamaria has a modest amount invested in stock via the Robinhood app, which offers free trading.
The pair recently met with a financial advisor who showed them how secure they would be if they saved $1,000 a month. Petroff said hearing that amount was a little shocking at first, but they’re going to aim high. Once they’re down to one car, it’ll be doable.
“It’s lofty,” she said. “But none of this means anything unless we can save for what we want down the line.”
Santamaria added, “The assumption is made that your lifestyle isn’t going to change at all, which is a ridiculous assumption. To maintain our lifestyle, we’re going to have to make more money in order to meet those goals — if we’re going to do anything like have kids, replace the cars, and buy a house. In order to put more money away, we need more to come in.”
Fun(?) Fact: If current trends continue, the Class of 2015 may not be able to retire until Age75.
It’s like the perfect storm. This confluence of circumstances is why millennials are lagging behind in the nesting milestones previous generations achieved early in their adulthood.
“The average student loan out there right now is $28,000,” Reynolds said. “That in and of itself might not be a bad thing if we’re associating it with high-paying jobs with lots of benefits and security. The workforce that these students came out with in college is low-paying jobs and layoffs.”
And that student loan comes knocking on your door six months after graduation, Reamer added, so millennials need to be making a sizeable salary right away. Some will have to find a job outside their passion or degree to pay back debt and afford basic expenses.
“It also handicaps your ability to buy a house,” Reamer said. “Those are two very direct consequences. There’s a lot of indirect consequences in that business loans are harder to get, potentially. Millennials have, on average, waited to start a family longer than other generations. Those aren’t necessarily consequences, but it’s a financial hurdle.”
Reamer said his parents bought a house in their mid-20s, whereas some of his clients are waiting until their early 30s to purchase a home and have children.
Advisors typically recommend clients buy a home that is two to four times their gross annual income. According to the Federal Reserve, the median income per capita in the Tacoma-Seattle-Bellevue area is about $65,000, while the median price of a single-family home on the Eastside reached a record $938,240 last year. It’s an intimidating sticker price that is forcing many millennials farther and farther out of the cities.
A Changing Climate
Santamaria said his parents clawed their way out of poverty. In the ’90s, his parents bought a few acres, split up the lot, and built two houses. They lived in a roughly-700-square-foot house with an infant and didn’t move until they couldn’t fit another cradle inside. Each real estate investment moved them up the ladder into wealthier neighborhoods. By the time Santamaria moved away for college, a Chinese family had offered his parents $100,000 over the asking price for their Silicon Valley home.
“I think something our generation is going to have to reconcile with is that the places we grew up with are no longer those places,” he said. “I think the problem with the mindset is that a lot of our peers have moved to San Francisco and they say, ‘I’ll never be able to buy a house here,’ and it’s like, yeah, 99 percent of the population will never be able to buy a house there.”
Santamaria and Petroff love Bellevue, but it’s likely not where they’ll settle down. They’ll probably have to stray farther outside the urban area to afford what they want.
But they’re pretty accepting about their financial situation. Now that they both have income flowing in, they’ve decided that the debt is what it is. It’s going to follow them regardless, so their focus is on growing their careers.
Working in architecture, Petroff said, her income has a ceiling and can be volatile with the market. Santamaria, however, is in sales, and he’s working with a friend on a startup centered around real estate. He spends several nights and weekends trying to get it off the ground, hoping it will start bringing in income as well. He has a hungry drive to bring them to a better financial status and aims to pull in six figures in 18 months.
“We’ll re-evaluate when we get there,” Petroff said. “But we have the benefit of having each other. So many of our friends are fresh out of college, single, starting their first jobs and living in a super-expensive city.”
Fun(?) Fact: Millennials are HALF as likely to own a home as young adults were in 1975.
For those who begrudge the flighty millennial who can’t stay at one job for more than a year or two, there’s a reason for that, Santamaria said. The workplace landscape is much different for millennials than it was for baby boomers. A yearly raise with a cushy pension and benefits doesn’t typically exist for younger workers. It’s been painted out of job offerings.
“Our parents lived in a different economy,” Santamaria said. “They lived in a different economy and job market where you could get hired at 18 and retire at 65 at the same place. Those jobs don’t really exist. I think the average for a millennial is two years at a job. It’s pretty aggressive. Part of that is because you make more money every time you move (jobs).”
The trend only reinforces Reamer’s comment that if millennials had begun their careers 10 or 15 years ago, they’d be earning more sizeable incomes. Job hopping has become the norm for better opportunities.
A Brighter Future
Santamaria and Petroff have optimism, though, for themselves and their generation. Their whirlwind relocation, no matter how stressful, brought them one step closer to where they want to be. And that’s what this period is all about, inching your life a little closer toward a better future.
“Know your situation,” Santamaria said. “I think too many of us are oblivious about it, and that’s why they’re overwhelmed. Then they get themselves into a worse situation because they don’t know what they can actually spend.”
If there’s any light at the end of this tunnel, it’s that time is on their side. Reamer and Reynolds noted millennials have grown up in an era of immediacy, but wealth is the opposite. Every day, every dollar counts, and if this generation can be patient and diligent about its financial goals, those goals are achievable. It’s better to go through this now while there’s time to alleviate the debt burden and amass wealth, as opposed to some baby boomers who are nearly upon retirement and are just now taking their money seriously.
The power of knowledge also can’t be understated. People have more access to information than ever before. Financial advisors used to be reserved for the wealthy, who had the financial padding to invest in stocks. That door has been blown open by the internet.
“I have optimism,” Reamer said. “I think there are some things that will get a little easier, as some of those student loans are paid off and as some of those other debts are paid off. But, do you think taxes are going to go down? Or the government will give you more money for social security? I think there’s a lot of optimism, but I think millennials will be able to make better decisions.”
Fun(?) Fact: Student debt can end up costing college graduates $684,474 in lost retirement savings over a 50-year period.
One flowering outcome of this generation being financially strapped is the entrepreneurial spirit millennials are famous for. As Reynolds said before, many millennials don’t have confidence in corporate America, so they’re creating their own opportunities.
“We’re in the experiential economy,” Reynolds said. “We’ve just come out of the tech and information economy, and prior to that was the service economy. … The individuals who have the money, the baby boomers, want experiences. If the millennial generation builds an experience and they’re passionate about it, people will pay through the nose for that.”
He added, “I’m really optimistic for this group. Out of adversity is innovation.”
Getting Your Financial House in Order
Tips to help you crawl, walk, and run toward a secure financial future
We’ve tapped the minds of two financial experts — Aimée Huff of MyICON in Kirkland and Steve Juetten of Juetten Personal Financial Planning in Bellevue — and asked them about a variety of subjects aimed to help you strategize your finances. Read their words below and, at the very least, you may come away with a clearer picture of your options.
Aimée Huff: Everyone should have a modest cash cushion in their savings to fall back on when costly emergencies such as layoffs, vehicle repairs, and medical expenses arise.
Huff recommends millennials put no less than 10 percent away each month, ideally 15 percent, and increase that amount each year.
“The rule of thumb is three to six months of spending needs, not necessarily income,” Huff said. “But the caveat is if you have high-interest debt. If someone is paying 24 percent on a credit card, get that gone. I want to see the high-interest debt gone first.”
Steve Juetten: Like Huff, Juetten agrees emergency funds are a high priority for young professionals, and they should be the baseline of your savings account. Juetten recommends putting this money into an online savings account because they generally have higher interest rates and are more out of reach than your local bank account. Use websites like NerdWallet and Bankrate to compare online options and figure out what’s best for you. If you’re tight on money, Juetten recommends opening your savings account using your tax refund. Otherwise, set up a savings account that automatically takes a percentage of your monthly income.
Huff: Take full advantage of what your employer offers. Huff is always surprised by how many people are leaving money on the table when they don’t tap into employer matches, which are typically set at 3 to 4 percent. Contribute what your employer contributes, even if you have to tighten your belt a little.
If you’re looking to start a separate retirement account, familiarize yourself with some key differences between 401(k)s and IRAs. An IRA allows you to save up to $5,500 a year, according to Huff, while a 401(k) permits $18,500 annually.
Individual plans may have some differences depending on who is offering them and your income-tax bracket. Also, the money you contribute could be pretax or post-tax, so you should consult with a certified tax or financial expert to decide which plan will benefit you the most.
Juetten: “People are too conservative with their investments,” said Juetten, who recommends millennials ignore short-term market fluctuations and focus on long-term growth. “401(k) money is meant to be there for a long time, so people should be using an aggressive asset allocation approach consistent with their risk tolerance.”
Also, your contributions should rise along with any wage increase. “You’ll never miss the money, and it’s a great way to silently and automatically increase the amount that you save,” Juetten said.
Juetten recommends putting 15 percent of your pretax annual salary into a retirement account. If that’s not possible for you right now (don’t worry; you’re not alone), try taking baby steps to get there: Start by contributing whatever percentage your employer will match, then increase that by 1 percentage point every year.
Self-employed? You can actually open a low-cost Solo 401(k) plan to make the most of your self-made money.
Finally, Juetten warned against borrowing from your 401(k), which is possible, but almost always a mistake.
Huff: Most of Huff’s clients tend to put a little extra toward each of their loans. But she recommends the “snowball effect” strategy. First, tackle debt with the highest interest rates or smallest debt amount. Pay as much toward either one until the debt is clear, then put the principal payment of your paid-off debt toward your next debt loan, and so on. For example, if your car payment is $300 each month, pay that off, and then put that $300 toward another loan. The snowball effect ensures you pay your debt off quickly, according to Huff, and you’ll save a lot in interest.
Juetten: Debt has a double whammy effect of reducing both your income, and the amount of money available for you to invest, according to Juetten, and he recommends paying off credit-card debt and automobile loans first.
Pro tip: Most student loans have lower interest rates, and (unlike consumer loans) up to $2,500 of interest payments is deductible. If necessary, student loans can be paid over the long term, while credit-card debt needs to be addressed immediately.
529 College Savings Account
Huff: If you want to start a college savings account for your child, the 529 is the one Huff recommends. The recent tax reform bill widened the options to include K-12 education, whereas before it was only higher education. But stay tuned, the rules haven’t been formulated by the IRS, yet.
In terms of secondary education, it can be used for any accredited higher education schools — pretty much anything that accepts the federal Free Application for Federal Student Aid (FAFSA). That money can be put toward books, living expenses, and fees. The money is taxed before it’s put into the account, and it’s tax-free as long as it goes toward education.
If you withdraw the money and it isn’t used for education, you face a 10 percent penalty and taxes on any portfolio growth. Huff recommended looking into a 529, but only once your “financial house” is in order, such as paying off credit-card debt, building your emergency reserve, and buying a home.
“You need to put your own oxygen mask on first,” said Huff. “There’s no loan for retirement.”
Juetten: Juetten recommended finding a 529 with low administrative expenses, low investment costs, and a large selection of age-based investment options. Plans offered by New York, Utah, Michigan, and Iowa meet these criteria, so look into those and decide which is best for you.
“The great thing about these plans is that they are sponsored by the states, but the money can be used at any accredited institution,” said Juetten. What’s more, you don’t have to be connected in any way to the states that offer these great plans. “You can live in Washington, save in Iowa, and go to school in California. It really doesn’t matter as long as the money is used for expenses related to education.”
Buying A House
Huff: Income inflation doesn’t keep up with the astronomical housing prices in this area. Median prices for Eastside cities range from mid-$500,000 to more than $900,000, and in Seattle, 1 in 5 homes sold for more than $1 million. Median income, on the other hand, is around $65,000 per capita for the Tacoma-Seattle-Bellevue area, according to the Federal Reserve.
“Housing, especially in this (area), is one of the biggest hurdles that (most) millennials face, bar none,” said Huff. “It’s just crazy.”
Avoid costly mortgage insurance by putting around 20 percent down on the price of the home. If buying a home is important to you, Huff advised to make sure you’re committed to the house and the area, because moving is expensive. And keep in mind that paying rent versus paying a mortgage isn’t apples to apples — there are more unexpected expenses that come with buying a home, so having an emergency reserve becomes even more critical.
Juetten: Before you start looking for a home, you need to decide whether you really want to be a homeowner. It’s not for everyone, as it comes with a lot of unexpected expenses and ties up your cash flow in a serious way. It’s important to make sure that all parts of home ownership — the good, the bad, and the ugly — fit your values and goals.
If they do, you’ll need to decide what you can realistically afford. This shouldn’t only account for the purchase point, but also factors like ongoing upkeep and maintenance, insurance, taxes, furniture, and moving expenses. Once you settle on a budget, don’t budge. Many of your priorities will likely be compromised when looking to buy a house; your budget isn’t one of them.
Huff: Set a budget, and stick to it. It helps if you can sort each paycheck into different accounts: fixed expenses, discretionary spending, savings account, and experiences. Breaking your cash flow into set categories can keep you from overspending, Huff said. When Friday night rolls around and you’re making plans, you can check your discretionary account and determine whether you can afford a night out or just stay home and order pizza.
Juetten: The app Mint conveniently connects to your banking accounts and automatically keeps track of your spending, sorting it into categories. If you want a more hands-on approach, the You Need a Budget app helps you stick to your budget by asking you to manually categorize your transactions and, in doing so, become more aware of where your dollars are going. If you want that same control but prefer to stick to an old-school method, you can design your own Excel spreadsheet (or use one of many templates found online).
Buying a Car
You’ll want to purchase something that doesn’t consume more than 10 percent of your monthly take-home pay. Something less than 5 years old is best: Older cars might not save you that much money in the long run, as the maintenance fees will add up.
No matter what kind of car you’re buying, be skeptical of great deals: Cars salesmen know how to make something sound better than it is, so you should always walk away from a deal to think about it before making your decision. Remember to be realistic about what you need vs. what you want. If you can save money buying a car with fewer bells and whistles, doing so is probably a good idea.
Saving for a Wedding
This can be a tricky subject: A wedding is a value-driven event, which can make people more likely to spend a lot of money. As a result, it’s important that, early in the wedding-planning process, you have a conversation with your partner about the budget and ask each other whether there is anyone else who is willing to help pay for it.
To stay on track, you’ll want a separate savings account specifically for any costs related to the wedding. That way, it’s easier to track the many vendors you’ll be paying, and you won’t raid it for other expenses. The sooner you can start putting money in there, the better.
Saving for a Vacation
The kind of vacation you can save for and afford depends a lot on your situation. If you’re just graduating from college, you’ll want to have a job lined up if you’re planning on backpacking around Europe; if you’re dealing with debt, you might consider a low-cost trip like hiking the Pacific Northwest Trail.
Otherwise, save for a vacation like you might save for anything else: Open an online savings account where your vacation money goes, and resist any urge to touch it for anything else. If you’re planning to travel for over two weeks, you’ll also want to have an emergency account that you won’t dip into while you travel unless something goes wrong and you need backup funds.
Finding a Financial Advisor
When looking for an advisor, there are two main must-haves: The advisor needs to be a fee-only advisor and a fiduciary. These kinds of advisors offer the same rate across the board for all clients and aren’t influenced by many of the conflicts of interest that are present in the industry. Try looking for advisors on the CFP Board or through Garrett Planning Network. Once you find someone, remember to double check that she is a fiduciary, and always ask how she is compensated. A lot of advisors will even do an hour-long session for free so you can decide if they are a good fit for you and your financial goals.
I Will Teach You to be Rich
by Ramit Sethi
Aimed at 20- to 35-year-olds, this book takes readers through the four pillars of personal finances: banking, saving, budgeting, and investing.
The Millennial Money Fix
by Douglas Boneparth
Aside from helping you get your finances in order, the chapters help you find a job you love, plan for marriage and kids, and retiring with the ability to do what you want.
The economy explained with the cadence and allure of a friendly conversation.
Good Financial Cents
The A to Z of your financial questions, from starting a business to investing in penny stocks.
Pick a goal and set rules, like saving $20 a week, or rounding up your purchases. Each week, Qapital moves that money to a separate savings account. Sit back, and watch it grow.
If budgeting is on your agenda, Mint makes it easy by categorizing your purchases. Pay bills and set goals so you don’t overspend on, say, the café across the street from your office. And you can tether all your accounts, so you know exactly how much wealth (or debt) you have.