Millennials, the generation that often eschews the values of its parental units, are a financially unsavvy lot who use dumb things like payday loans, pawnshops, and auto title loans to get by, according to a new study by PwC and the Global Financial Literacy Excellence Center at George Washington University.
More than 5,500 millennials, described as ages 23 to 35, were surveyed for Millennials & Financial Literacy â the Struggle with Personal Finance. The findings identify this generation's financial characteristics, as well as factors that threaten their economic security and goals.
âMillennials owe a lot. They know too little. Millennials' struggle with debt may eventually become our problem, too,â Annamaria Lusardi, academic director of the Global Financial Literacy Excellence Center, said in the study.
The study revealed eight key trends of millennials and how they handle their finances.
1. Insufficient financial knowledge. About a quarter (24 percent) indicated basic financial knowledge. Millennials are the least financially literate among all age groups. They understood more about mortgages and ânumeracyâ than inflation, diversification, and bond concepts.
2. Dissatisfied with their current finances. About a third (34 percent) indicated they are very unhappy.
3. Worried about student loans. More than 54 percent said they're concerned about being able to repay their student loans. Of those with household incomes of more than $75,000, 34 percent worry they won't be able to repay the loans.
4. Debt has no economic or educational boundaries. Regardless of education levels, millennials are over their heads in debt. Among college-educated millennials, 81 percent have at least one long-term debt, and two-thirds of all millennials have at least one long-term debt.
5. Financial fragility. About a third (30 percent) overdraw on their checking accounts, almost half don't think they could come up with $2,000 for an emergency expense, and 53 percent carried a credit card balance in the last year.
6. Significant use of âalternative financial services.â Within the past five years, 42 percent used payday loans, pawnshops, auto title loans, tax refund advances, and rent-to-own tactics. This is common for this age group â even for those considered middle class. Of those who use these services, 50 percent were high school graduates or less, 39 percent have bank accounts, 35 percent use credit cards, and 28 percent are college graduates.
7. Dip into retirement accounts. More than 20 percent with retirement accounts took loans or hardship withdrawals in the past year. About a third (36 percent) have retirement accounts.
8. Don't get professional financial help. Less than a third (27 percent) sought professional advice on savings and investments within the past five years, and 12 percent sought help with debt management.
The study concludes that the state of millennials' finances is worrisome because their practices could become entrenched. âThe research has documented that the gap between the amount of financial responsibility given to young Americans and their demonstrated ability to manage financial decisions is rapidly widening,â the study states. And this âknowledge deficitâ could be a personal, economical, and social disaster.
Terry Sheridan is an award-winning journalist who has covered real estate, mortgage finance, health care, insurance, personal finance, and accounting and taxation issues for newspapers, magazines, and websites. A Chicago native and former South Florida resident, she now lives in New England.