It’s the American dream: Grow up, attend the right school, graduate…and then move into Mom’s basement! Okay, maybe that last part is the new “amended” dream.
A record number of 20-somethings are opting to live at home rather than leave the nest. Specifically, 40 percent of American Millennials (young people ages 20 to 35) currently live with their parents. By comparison, that number was 27 percent back in 1991, when I got my first apartment at age 21.
Why aren’t young adults spreading their wings?
At first glance, Millennials seem quite “spendy.” After all, at their age we didn’t walk into work sipping a $4 coffee and thumbing an $800 iPhone. More than 45 percent of 18- to 23-year-olds have spent more on coffee than investing in their retirement. And yes, they love their phones. Almost all young adults own smartphones, and about two-thirds subscribe to on-demand video services such as Netflix or Hulu (with many mooching off a parent’s account).
Despite studies showing that Millennials struggle to manage their finances, we “older folks” can show a little understanding. Let’s step into their shoes for a moment (something I wish I would’ve done more as a parent)…
The Real Numbers
First, apartment rent is higher than ever. It increased 4.6 percent in 2015 alone, the biggest leap since before the recession. I know several Millennials who were on their own but recently moved back home (as “boomerang kids”) when their monthly rent went up by three digits.
Rent hikes are a drop in the bucket compared to the mountainous spikes in education costs. In 1980, the average annual cost of tuition, room, board, and fees at a four-year college was $9,438. Now it’s $23,872! That’s a 260 percent increase, and it’s staggering when compared to the 120 percent increase in all consumer items. And compared to 1980, up to 19 percent more young people are completing at least four years of college.
Higher costs mean greater debt. The average debt burden for college graduates has more than doubled within the Millennial Generation. On graduation day, members of the class of 2016 were strapped with an average of $37,172 in student loans, compared to $18,271 for the class of 2003. Most students take 10 years to pay off that debt, forking out an average of $429 monthly. (Or 7.5 years if they pay an extra $100 a month.)
Maybe that’s why more than one-third of graduates regret going to college because of the debt. In fact:
- 49 percent believe they would have reached the same level in their career even if they hadn’t gone to college.
- 63 percent say they’re relying on a one-off event, such as winning the lottery or getting an inheritance, to pay off student loans.
But at least this better-educated generation is earning more than their parents, right? Sadly, not much. Here’s where the numbers differ. A new analysis of Federal Reserve data claims that Millennials, with a median household income of $40,581, actually earn 20 percent less than Baby Boomers did at the same life stage. The report states, “Education does help boost incomes, but the median college-educated millennial with student debt is only earning slightly more than a Baby Boomer without a degree did in 1989.” And the median net worth of Millennials is 56 percent less than it was for Boomers.
Sounds bleak. But just a few years ago, Pew Research revealed a more optimistic picture, showing a slight increase in income by generation when using today’s dollars. It also revealed a greater disparity in income between college and high school grads. For example, in 2015 a person with a bachelor’s degree made an average of $1,980 more per month than someone with just a high school diploma. (An extra $2,000 a month sure helps pay off that college debt!)
So how are “on-their-own” Millennials paying bills? With their thumbs. When they’re on their phones, young adults aren’t just scrolling through Snapchat stories.
- They’re thumbing rides because they don’t own cars. In fact, more than half either don’t intend to purchase a car or don’t consider that a priority. Only 15 percent of Millennials say a vehicle is really important. Another 25 percent say it’s important but not a big priority.
- Millennials also moonlight, using their skills to earn extra money. The networking site LinkedIn says the number of young adults who freelance on the side is growing logarithmically, far faster than the number of full-time freelancers.
- Young adults also tend to be savvy shoppers. Most shop with phone in hand, comparing prices and searching for the best deals. Millennials are actually less likely than previous generations to buy something simply because it’s convenient. Instead, they focus on value.
Parents should resist the urge to say, “When I was your age…” Because, all things being equal, you’ll also have to admit, “I made more, paid less in rent, paid less for school, and spent way more money on my car!”
Instead, engage in practical conversations (not lectures) about budgeting and spending . My dad showed me how to make a budget on a napkin. He let me choose how to spend my money, but I had to make a budget and stick with it. If I wanted to spend half my money on girls (I did), then that was my choice (a bad one). But I learned to notice what I spent.
If your kids spend too much on Starbucks, don’t forbid it; just make them track their spending. They might think twice when they sit down at month’s end and have to write “coffee, $96.”
Help your kids think about the future. If they’re in college, take them to dinner and affirm them. Share ways their hard work now will pay off later. Show them numbers from the sources above, if that helps.
If you have high schoolers or middle schoolers, still take them out to dinner and affirm them. Discuss their educational goals and provide information to guide their decisions. Show your kids charts revealing the income disparity between people who earn degrees and those who don’t.
If you have toddlers, take them to Chuck E. Cheese and jump in the ball pit together. Then, when you tuck them in at night, read books. Readers are learners, and your kids will probably want to go to college before you even bring it up.