Surya Kolluri is Managing Director for Retirement Research & Insights at Bank of America and Jeanne de Cervens is Director, Business for Impact AgingWell Hub, at the Georgetown University McDonough School of Business. The Georgetown report, made possible with support from Bank of America, was based on surveys conducted in October 2021 across the U.S. with 1,174 respondents age 22 to 40, across all genders, age bands, geographies, and education and income levels. The nationally representative results were released March 2022.
A recent survey finds that almost two-thirds (63%) of Gen Z (those born between the late 1990s and the early 2010s) and Millennials (born between the late 1990s and the early 2010s) agree that employee benefits (e.g. retirement plan, health care, time off) are more important than ever, consistent with our survey of the same population fielded one year earlier. This is good news for employers seeking to entice those returning to work in the face of the ‘Great Resignation,’ and for those concerned about the short and long-term financial security of these young adults.
Nevertheless, that same survey also reveals that Millennials, many of whom have already fallen behind their parents in terms of financial wellness, are continuing to lag further behind. Nearly half (48%) of Millennials report living paycheck to paycheck, a 6% rise from the prior year’s survey, and fewer than one-third (28%) believe that they could handle an unexpected major expense, a 4% drop from the prior year.
Why this is concerning¸
These findings are especially concerning given the strong labor market at the time of the survey, and Millennials’ stated commitment a year earlier to getting their financial houses in order. While in 2020, 43% of Millennials cited saving for retirement and building an emergency fund as top financial goals, only 30% and 33%, respectively, reported taking steps toward those goals over the last year. A major gap between intent and action has also emerged for buying a home. In 2020, 37% of Millennials stated a goal of saving for or buying a home, while only 21% now report taking a step toward that goal. Home ownership is significant as it helps build financial assets that tend to grow over time.
There are, however, a few bright spots in our recent survey. The same percentage of Millennials that identified paying down debt (44%) and creating/ sticking to a budget (33%) in 2020 now say they have taken steps to do so. In addition, 43% of Millennials reported improving their credit scores, which is 4% more than those who identified this as a financial priority in 2020. Perhaps just as important are actions taken to lift those scores, including paying bills on time, lowering their balances, and not opening new accounts. All these are behaviors that, if continued, will help Millennials become better stewards of their finances.
Many open questions remain, including whether the improvements in Millennials’ debt loads and credit scores were helped or harmed by the pandemic economic assistance, including the moratorium on federal student loan repayment, rental assistance, and unemployment compensation. Now that the relief is ending, will these gains be undone? In the face of a strong job market, why are Millennials continuing to struggle financially?
One possibility is that the strong job market and pandemic relief have not fully compensated for shortfalls due to job loss. Moreover, due to either job loss or work burn out, some Millennials may not be working at the same level as prior to the pandemic. Additionally, some are likely to hold contract/ gig work positions, so they may lack access to employee benefits, including financial wellness programs helping them establish budgets and create financial plans. These possibilities are consistent with our survey finding that 56% of young adults will seek in their next job to prioritize flexibility (e.g. time, working hours, comfort, etc.).
Other potential explanations
Factors outside the labor market may also be in play. Buying a house – a key asset in many peoples’ financial portfolios – may be out of reach for many Millennials due to rapidly increasing prices in a hot real estate market and rising interest rates. Financial support from parents may have shrunk or dried up as a result of the pandemic. Indeed, in 2020, 57 % of Millennials admitted to still receive some form of financial help from their parents, with few aware of their parents’ own financial situations.
Differences by population subgroups
The survey findings are generally consistent across gender, race, and ethnic lines, though notable differences emerged when Millennials are asked about their financial futures. Over half (52%) of Black/African Americans, 47% of Hispanic/Latino Americans, and 43% of men agreed that they anticipate having a better life than their parents, compared with 39% overall. In addition, while 32% of all Millennials agree that they are securing their financial future, the percentage is higher for men (40%), Black/African Americans (47%), and Hispanic/Latino Americans (36%). By contrast, the fraction is lower for women (27%). Increased awareness garnered by the racial and social equity movement of the past few years has likely impacted the racial and ethnic minorities’ outlooks. Millennial women’s struggles with childcare and shift to their children’s on-line learning during the pandemic is also likely to have colored their more negative outlook.
Implications for employers
Our new survey provides valuable information to help employers and financial services providers craft solutions tailored to the young, particularly the Millennials. In a tight labor market, employee benefits including retirement plans and financial wellness programs will help employees reach their financial goals and provide employers an edge in attracting and retaining talent. Indeed, almost a third of Gen Z and Millennials confirm that employee benefits are more important to them than ever. Employers must also provide their workers with information in a variety of ways, to best respond to Millennials’ preferred ways to receive financial advice and make financial decisions.
Specifically, Millennials are not a one-size-fits-all generation, in that they gather financial advice and make financial decisions in a wide variety of ways. For example, while two-fifths (40%) of Millennials overall list family as the top source of advice, female Millennials are more likely to rely on family members for financial advice (44%), while Black/African Americans are less likely to do so (34%). In addition, more women prefer to receive financial advice through asynchronous channels such as email (38% of women vs. 24% of men) and mobile apps (32% of women vs. 24% of men), while Black/African Americans report that the phone is their preferred channel for financial advice (27% vs. 18% overall).
What is clear is that employers, financial professionals, family, and friends will need to take the time to understand and craft solutions as well as communication styles that meet Millennials’ expectations and preferences. With inflation, soaring housing prices, rising interest rates, and the winding down of pandemic support, Millennials’ uphill financial climb is getting steeper all the time.
Retirement and Personal Wealth Solutions is the institutional retirement business of Bank of America Corporation (“BofA Corp.”) operating under the name “Bank of America.” Investment advisory and brokerage services are provided by wholly owned non-bank affiliates of BofA Corp., including Merrill Lynch, Pierce, Fenner & Smith Incorporated (also referred to as “MLPF&S” or “Merrill”), a dually registered broker-dealer and investment adviser and Member SIPC. Banking activities may be performed by wholly owned banking affiliates of BofA Corp., including Bank of America, N.A., Member FDIC. Investment products:
|Are Not FDIC Insured||Are Not Bank Guaranteed||May Lose Value|
Views of our Guest Bloggers are theirs alone, and not of the Pension Research Council, the Wharton School, or the University of Pennsylvania.