Stressed Millennials Could Use Some Advice on Managing Their Growing Debt

Millennials rank getting out of debt as a top goal. Banks and credit unions have advice to offer, but they have to be mindful of this generation's skepticism toward the financial services sector. Show some empathy and skip the suggestions about pinching pennies to the point of giving up small pleasures.

Financial institutions casting around for ways to reach Millennials should promote their money management tools and share helpful advice for paying down debt.

Nearly seven in 10 Millennials, or 69%, cite getting out of debt as their biggest financial goal in a survey commissioned by Real Estate Witch, a website that provides consumers with information on home buying.

Despite their intention, however, more Millennials are falling behind. Nine in 10 Millennials are carrying non-mortgage debt in 2023, up from 75% last year, according to the survey of 1,000 people born between 1981 and 1996. Their average debt load was $90,000.

Contributing factors include a growing share of Millennials with auto loans, which jumped to 42.9% this year, up from 28.9% last year, says Matt Brannon, a data writer for Real Estate Witch’s parent, Clever Real Estate. More Millennials also owe money on credit cards – 56.9% this year compared to 47.9% last year. This was the most common form of debt cited overall.

Most Millennials say a major life event tipped them into debt. Many had financial setbacks due to job losses (31%) or medical emergencies (42%), for example. Having children or getting a divorce also created strain for some.

A Startling Statistic:

Millennials who say a major life event such as a medical emergency, job loss or divorce tipped them into debt:
Nearly 9 out of 10

Inflation and rising interest rates have made paying down debt more challenging, as has the end of a federal moratorium on student loan repayment.

“This is an especially stressful time to be talking about this for many Millennials,” Brannon says. At 28, he is at the younger end of the generational cohort that came of age during the Great Recession and still views banks with a healthy dose of skepticism.

Traditional financial institutions generally offer credible advice, but they have a hurdle to overcome with this generational group, he says. “You’re trying to give this advice to a generation that is about as skeptical of the banking system as any generation has ever been, one that came to adulthood during the Great Recession and obviously feels a little bit jaded after the way that played out.”

Millennials Expect Paying Down Their Debt to Take Years

One sign Millennials could use some help lies in the numbers about their worsening expectations for paying down what they owe.

More than a quarter, or 28%, expect it will take five to 10 years to clear their non-mortgage liabilities, up from 15% in 2022. Conversely, the share expecting it to take one to five years shrunk to 47%, compared with 63% a year earlier. Another 6% percent expect they will never pay off their debt, a figure that is consistent year over year.

A majority of Millennials, or 53%, believe it is “practically impossible” to avoid debt, according to the survey. And while 96% of Millennials have regrets over at least some aspect of their financial picture, only about a third, or 34%, regret taking on debt. Brannon theorizes the lack of regret might be because they see debt as a necessary evil, whether to be able to go to college or buy a car.

Still, their debt complicates future borrowing. Nearly six in 10 Millennials, or 57%, say their debt has led to them being denied a loan or line of credit, Brannon says.

This is an area where financial coaching could help, possibly around steps for boosting their credit scores.

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High Housing Costs Are Weighing On Millennials

It’s worth noting that paying for housing — whether that is rent or a mortgage — is a struggle for 47% of Millennials, according to the survey.

The U.S. Department of Housing and Urban Development considers housing to be affordable if it costs no more than 30% of a person’s income. But nearly six out of 10 Millennials — 57% — report that a larger share of their income than that is going toward housing costs.

A Worrisome Gender Gap:

Overall, 44% of Millennials say they cannot comfortably afford a $500 expense out of pocket. This is true of 49% of the women, compared with 37% of the men. The gap is consistent with other data in the survey showing that female Millennials trail their male counterparts in both salary and savings.

Nearly two-thirds of the survey respondents, or 63%, already own a home. But of those homeowners, more than half say they would not be able to afford their houses if they were trying to buy them today.

And those who don’t own a home find the prospect increasingly daunting. Half of the non-homeowners believe they will never be able to afford one, up from 30% in 2022.

This, too, is a topic where banks and credit unions have an opportunity to engage Millennials with some financial coaching. Why not help individuals see what a path to home ownership might look like for them over, say, three years?

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The Right Way to Offer Financial Advice to Millennials

For financial providers hoping to offer advice, “there’s definitely a right way and a wrong way to approach it,” Brannon says.

The wrong way would be to make judgments about Millennial spending habits, tempting as it might be. Despite their debt, 59% of Millennials eat out at least once a week and 11% buy a cup of coffee every day, according to the survey. Many experts urge people to drop the daily java run in favor of making coffee at home and socking the extra money away.

“They just take it as a given that they’re going to be in debt for a while,” Brannon says. “So, when that’s a given already, there’s not a huge incentive to pinch pennies here and there.”

Don't Judge:

About 59% of Millennials dine out once a week or more, and 11% buy a cup of coffee every day.

And as a highly educated generation, Millennials are quick to note what they see as the bigger picture. Asking people to bring a canvas bag to the grocery store to help fight climate change, for example, can prompt rejoinders that corporate America is responsible for a much bigger slice of carbon pollution than the average shopper, Brannon says.

“Millennials are very quick to jump on things like that and feel like, ‘Okay, why are you chiding us when it’s other groups that have caused the problems you’re talking about?'” he says.

Millennials also are up on their economic history. When it comes to finances, the internet is full of memes pointing out the rock-bottom prices Baby Boomers paid for their homes and college educations.

Banks and credit unions don’t have to donate to the presidential campaign of Bernie Sanders if they want to make an impression, Brannon says. But “if an institution wants to try and approach Millennials, there needs to be some level of saying, ‘We understand your complaints.'”

In a previous survey, Real Estate Witch found that 66% of Millennials and Gen Zers say they are more likely to do business with a brand that shares their values, compared to 59% for Americans over 43.

Brannon points to Betterment, a digital financial advisory firm, as an example of a company that strikes the right tone in its messaging in terms of appealing to younger consumers. For example, in a tweet about the Juneteenth holiday, which commemorates the end of slavery in the United States, Betterment acknowledged the country’s continuing racial wealth gap.

“That kind of socially conscious message appeals to many younger Americans and creates a level of trust in the brand,” Brannon says.

See all of our latest coverage on Millennials and Gen Z.

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