Proof That Millennials Don’t Understand How Debt Works

A George Washington University poll determined that 69% of Millennials believe they’re financially literate, but only a quarter of Millennials actually are. What’s their biggest obstacle? Debt.

Two-thirds of Millennials have at least one form of long-term debt like a mortgage, car loan, or student loan. Thirty percent have multiple long-term debts, and more than a third have accumulated unpaid medical bills. The most shocking statistic? Twenty percent of Millennials with a retirement account took out a loan or made a hardship withdrawal in 2016.

Debt – a casual affair?

A significant number of Millennials consider debt an acceptable consequence of maintaining their image amongst their peers. They spend money they don’t have on expensive vacations, restaurants, and other experiences their friends suggest because they’re afraid to admit they can’t afford it. They feel compelled to say “yes” to avoid missing out. In the end, most never tell their friends they went into debt to make it happen.

Social media has a major influence on spending

Social media has profound potential, both positive and negative. When it comes to spending habits, social media has an exceptionally strong influence on Millennials. People routinely post beautiful photos from cruises and vacations and it makes others want to go on a luxury vacation, too. After seeing an overwhelming amount of vacation photos, some feel an uncontrollable impulse to make it happen in their life even if it means going into debt. Social media posts also influence unnecessary spending on things like jewelry, clothes, and electronics.

Millennials got the short end of the stick

In the job market, Millennials got the short end of the stick after graduating college. Many took out massive student loans believing they’d be able to pay them back after graduation. They were promised good jobs that never materialized.

The job market around their time of graduation was weak. Companies were faced with an increase in costs like taxes and interest rates, and were less likely to hire. Or, they were hiring at salaries much lower than expected. Getting the high-paying jobs became a fierce competition among the more experienced; recent college graduates didn’t stand a chance.

When employer expenses rise, they cut back on everything, including existing salaries. Even experienced professionals were being given salaries below what they were used to. Millennials didn’t see any of this coming because they were never taught real-world economics in high school.

They were never told how the national debt would affect their future. They were never taught that as soon as interest rates rise, they can expect a weaker job market followed by an increase in taxes and cuts to programs like Social Security and Medicare, and eventually a weaker dollar. They were taught economic theories but were neve given the tools to assess their own futures. For some reason, they never considered a backup plan. They never considered a plan for digging themselves out of debt if they didn’t get the job.

The next generation of graduates is going to be worse off

With a new generation of graduates comes the bleak reality that even an improved economy isn’t going to help them pay back a six-figure debt. In the last eleven years, student loans have grown by 157%; currently, we’ve got about $1.5 trillion in unpaid student loans floating around and that number is still growing.

Tuition rates are rising, reaching all-time highs. Interest rates on student loans are rising. Students with loans are spending more time working than studying just to make ends meet, and each year, college graduates are still struggling to find jobs.

The outcome we’ve seen in the last decade makes going to college seem like another bad investment, depending on your major.

Some Millennials are doing it right

Thankfully, some Millennials are setting an example that others can learn from.

By age 26, an anonymous man dubbed “The Money Wizard” put $150,000 into his savings account. He makes $70,000 per year, and has been able to save over 60% of his salary. He expects to retire comfortably by age 37 with over $750,000. Realistically, he may end up needing to save a little more or work a little longer, but he’s setting a good example for what it means to be financially responsible. Considering 6 in 10 American’s don’t even have $500 in savings, he’s doing exceptionally well.

Not everyone will be able to save as much as this wizard, but everyone can look at his example as inspiration to cut unnecessary expenses and choose to stop taking on debt. Financial responsibility always begins and ends with our choices.