As a financial advisor, as well as being an older millennial myself, I’ve encountered a pervasive trend among younger generations: fatalism about their financial future. Many millennials and Gen Z individuals express a sense of resignation, as they believe saving for retirement or other financial goals is futile, given very real financial roadblocks: large amounts of student loan debt, relatively stagnant wages and recent rises in the cost of living.
According to a recent study from Intuit, almost three-quarters of Gen Z Americans are hesitant to set up long-term financial goals. Two-thirds said they will likely never have enough money to retire. These viewpoints do have a basis in very real challenges; however, succumbing to this fatalistic mindset can have devastating long-term consequences. The longer it takes hold, the less time and fewer opportunities there are to change it in the future.
There are a few major factors leading to this fatalism:
1. Real economic barriers – Younger generations face unique economic challenges. Many entered the workforce around the Great Recession, significantly impacting job prospects and wage growth. Major wealth milestones, like owning a home, have been delayed, adding to their overall sense of resignation. Skyrocketing tuition costs have burdened many with student loan debt, making saving particularly onerous.
2. Social factors – Crippling comparison on social media can exacerbate feelings of financial inadequacy among younger generations. Their constant exposure to carefully curated lifestyles and material possessions often leads to hopelessness about ever achieving similar levels of financial success.
3. Financial illiteracy – Despite expanded access to financial education resources, many schools fail to teach basic financial literacy skills for our increasingly complicated world. Without a clear understanding of budgeting, investing, and compounding interest, saving can feel like an insurmountable challenge.
In addition to these barriers to success, recent generations tend to value immediate life experiences over financial security. In some ways, this has actually been healthy, as it enables younger generations to experience enriching, life-changing moments, which will shape them for the rest of their lives. On the other hand, if this lifestyle is taken to the extreme, at the expense of any future security, it is dangerous, both at a personal and societal level.
Here are a few things that may help younger generations change this financial narrative:
1. Encourage achievable goals – Younger generations today might not have an easier path toward enjoying a better lifestyle than their parents, but this was never a given. That lack of ease doesn’t relieve new generations of their responsibility to take ownership of their future. Financial resources are meant to help sustain our lifestyle throughout our lives, preparing us for possible future challenges. This requires a level of planning. It could be as simple as creating a budget that has a dedicated savings line item. It may also mean paying off loans more aggressively, making 401k contributions or learning the discipline of deferred gratification.
2. Financial education – Financial fundamentals are sometimes taken for granted in a world fixated on quick returns. The magic of compound interest, the power of employer matching and the long-term benefits of real estate ownership are important lessons to learn early on. A full employer match is a 100% return on the day of investment, and investing as early as possible in diversified assets is among the most reliable ways to create a secure financial future.
3. Highlight success stories – Share financial success stories of individuals who overcome financial challenges and achieve their lifestyle goals. Use balanced and modest examples, not just rags to riches stories. Real-life examples provide powerful encouragement, demonstrating that financial success is achievable with discipline and perseverance.
4. Offer support and guidance – Above all, be supportive of the younger generation’s financial journeys. Offer personalized guidance, answer questions and provide reassurance during moments of doubt. If you can offer a small amount of financial support, consider opening an investment account, showing them how their money can work for them in real time. Encourage freely throughout the process.
By addressing the root causes of financial fatalism and providing steps to overcome it, older generations can empower and mentor younger generations, helping them take control of their financial futures. With the right guidance, the financially disillusioned can regain hope and grow in practices that create financial balance throughout the rest of their lives.
Zach Harney is a wealth advisor at Monterey Private Wealth, Inc., an independent wealth management firm in Monterey. He welcomes questions you may have concerning investments, taxes, retirement, or estate planning. Send your questions to Zach Harney, 2340 Garden Road Suite 202, Monterey, CA 93940 or email [email protected].