MMS082: What Do Millennials Need To Know About Money?

EPISODE 82

[INTRODUCTION]

ANNOUNCER: Welcome to the Money Mastermind Show. Let’s Talk Money.

[EPISODE]

[0:00:18.5]MM: Welcome to this week’s episode of The Money Mastermind Show. Today, we will be talking about millennial and the state of their finances and what you need to know about money, whether you’re a millennial or even whether you’re a Gen X’er or a baby boomer.

Today, we have the Money Mastermind Show Panelist, we have Kyle Prevost from Young and Thrifty.ca, we have Peter Anderson from Bible Money Matters, and we have Tom Drake from the Canadian finance blog. Glen Craig from Free from Broke is not with us today and I am Miranda Marquit from Planting Money Seeds. I will be filling in as moderator, so let’s see how this goes shall we?

Okay, one of the more interesting items that have come across here in recent days is that there was a study done from Price Waterhouse Cooper and they surveyed 5,500 people between the ages of 23 and 35 about their financial, their personal finance knowledge, the state of their savings and the state of their debt and their overall satisfaction with their financial lives.

What they found out was that Millennial are not happy with where they stand with their money. According to a Forbes article about this subject, it says, “Millennials owe a lot and they know too little.” She said that Millennials also struggle with debt and that may eventually become our problem and I think one of the biggest debt problems is probably student loans.

But here are some of the stats from the survey: it says 50% of those survey said they couldn’t come up with $2,000 if an unexpected need arose and 54% were worried about their ability to repay their student loans. So I thought that was a good place to start, let’s start with debt and let’s start with savings. Tom, let’s start with you today and what do you think is probably one of the biggest reasons that millennials are having this problem?

[0:02:27.8] TD: Well the interesting thing about debt though, is it really just millennials or is it everybody? Know this study is only focused on certain age but I think debt’s probably become a bit of a problem and I know here in Canada the percentage or the dollar amount of debt that people are in has been rising quite a bit. I don’t know if it’s necessarily the millennial problem or maybe for just picking on them a little bit?

[0:02:53.7] MM: That’s a good point, who among us has not been in debt? What about you Peter? What do you think about this new survey?

[0:03:04.1] PA: Well, I think it is student loans, I think that’s one of the bigger issues that they’re dealing with. They come out of college with, I forget what the average was, with 25 or $30,000 worth of student loan debt just to get started. You go from there, I was reading another study, it said, millennial generation has a larger delinquency rate on their bills compared to all our age groups. Really, that just speaks to the fact that they are in debt and they’re having a hard time paying those bills.

[0:03:39.2] MM: One of the things that I find interesting about that delinquency number though is, how many of them have practiced paying their bills and understand what they need to do because I know somebody personally in my life who was like, “Well, I’ve secured an apartment and I’ve secured this apartment in December but I’m not going to be there for December because I’m going to be home for Christmas. So I don’t actually need to pay for my apartment until January because I’m not living there.”

Yeah, think about that for a minute, I’m like, “No, no, no. It’s your apartment, even if you’re not there, you still have to pay rent.” I wonder how much of that delinquency it is a little bit not practice paying for these things. I don’t know. What about you Kyle, what do you see, I know that you’re a teacher, what are you kind of seeing with these trends?

[0:04:37.4] KP: I think just, and as a teacher I’m bias of course, but I think it’s overall just a complete lack of education. I think that’s not necessarily unique to millennials, I just think it bites millennials harder because the post-secondary stakes are higher, the buying the first home at least in Canada at this point is higher stakes as well. These initial financial decisions are just maybe we were all dumb when we were 17, 18, 19, 20, but they just have more severe repercussions now maybe.

The job market is pretty bad, I’ve heard different variations of how to measure job market and that it was worse in such a time and I don’t want to get in to comparing generations because I’ve heard too much of that lately but suffice to say that at least again in Canada right now, the job market for youth is bad. It’s bad for a lot of people with post-secondary credentials.

[0:05:35.8] MM: I don’t’ know Kyle, I mean I think you’re the only millennial here, I think the rest of us are Gen X

[0:05:41.8] KP: Three on one here.

[0:05:43.7] MM: Maybe we need to gang up on you a little bit.

[0:05:46.9]PA: I kind of wonder how much of it is, they don’t have the education in order to make the right decisions. Compounded by the fact of the time we’re living in, a lot of them grownups, seeing their parents lose their homes to foreclosure and the market’s dropping and tanking and people losing their retirement accounts and so forth.

Once — Wells Fargo showed that millennials show that 45% of them were not even saving for retirement at all. The ones that are saving, I think I mentioned this in another episode, but ones that were saving, a lot of them were saving it, their money, in fixed income and cash type investments as supposed to maybe what they should be in stocks and in more long term investments. So it kind of seem like they’re a little gun shy, compounded by the fact that maybe they don’t have the right education or be making the right decisions.

[0:06:44.8] MM: I think you made a good point. All of us kind of messes together. You’ve got these high student loan debt rates because across the college has been sky rocketing recently. I mean I remember when I graduated from college and the average amount of debt at that time for a student loan debt was right around $15,000.

It’s almost doubled since then and it’s only been, oh never mind. It’s been a while, but it’s only been like 11 years since I graduated from college and already that average number is much higher than it was before. I think that that kind of it, combines with, like you said, they’re gun shy, it’s a very tough time I think to be coming out because you’ve immersed in media, they’re constantly consuming this news about, “Oh my gosh, the stock market dropped.”

We all know that nobody pays attention to the so called stock market except for the DOWE and that’s not even representative and just sort of compound. But one of the things I found interesting was, the study indicates that millennials have a retirement account in about the same number as American brokers who are automatically enrolled and were to place savings accounts. Some of them have been taking hardship withdrawals from their retirement accounts.

While we’re talking about investing, what is one of the biggest problems about taking that withdrawal? You think you need the money. Tom, what do you think about that?

[0:08:27.4] TD: I did something, I’ll call it similar, but it’s actually better. In Canada I was able to take money out for the home buyer’s plan, the RRSP and in my case it’s something that’s a little less frowned upon but you’re still taking money out that you could be earning, that kind of opportunity cost of when you pull money out. At least in my case you can put it back, I’m not sure about how you're talking about works but can you put the money back?

[0:08:56.2]MM: Yeah, yeah. Well you can, you can take a loan and if you take a loan you have to pay it back and you pay interest back into it but if you take an early withdrawal, that’s different, you have to pay taxes on it.

[0:09:09.3]PA: Taxes and penalties.

[0:09:10.9] MM: Yup.

[0:09:11.9] TD: Yeah, here in Canada with RSP, you lose the contribution room if that were the case. What I did at least, it was something I can pay back in to without losing that contribution room but the opportunity cost for sure, it’s kind of a missed.

[0:09:26.4] MM: What are some of the other issues though that any of you might see when it comes to, not just millennials, I know we’re kind of picking on Kyle and his generation a little bit but what are some of the other issues that maybe we see in money, whether they’re in their 20’s or their 30’s.

[0:09:47.4] KP: I think compounding further, the gun shyness on the investing front is the severe distrust in institutions, it seems to be like one of the defining characteristics of the millennial, and by the way, it’s not an illogical position frankly when you see what’s going on in both the American major institutions and some of the Canadian institutions as well.

I don’t think that’s an illogical position to lose trust in some of those former touch stones. That being said, it doesn’t manifest itself well when talking about banking. If you don’t trust then there’s no reason to save for retirement, you're not trusting that this major banks or institutions will sort of take care of your savings and grow your savings and you have no trust in sort of the way that you traditionally manage things.

Then you never engage with it, it’s easier to just push it to the back burner, take early returns from your retirement account because who cares if you get taxed on them, you’re not earning enough to pay taxes anyway in many cases. It just becomes very easy sort of logical loop to fall in to of sort of defeatism and non-trust and it can sort of rapidly lead to this weird open letter war that we are talking about before the show that maybe Miranda you can give us some background on what I’m talking about here. I’ll just start swearing soon.

[0:11:09.5] MM: We could use a little more swearing actually — no I’m kidding.

[0:11:12.6]PA: No.

[0:11:13.9] MM: Someone has to edit that out.

[0:11:14.8]PA: I have to edit that out, please no.

[0:11:18.8] MM: I just remember, there was yeah, somebody wrote an open letter to her CEO about — I can’t remember what, I thought it was stupid that I thought all the responses were like you, like all the responses were stupid and I said, “I don’t have time for this anymore.” But yeah, let’s see, why don’t you tell us about it Kyle?

[0:11:43.2] KP: Yeah well essentially, this girl thought that her boss had done her wrong and wasn’t good and so then she was fired for non-related reasons apparently, soon after which, “Hello, yeah you were, of course you were, what did you think was going to happen to that point?” This other millennial comes on and takes her on and they both get a ton of followers on social media, I’m sure it worked out great for both of their freelance writing careers and maybe I should start writing open letters, I don’t know.

Anyhow, all of a sudden now I see popping up every bloggers got their own take on this and there’s a martyrdom complex and my general impression is, there’s really nothing substantial to be gained from either belly aching about the fact that you seem to lack experiences or sort of condemning that. I just don’t understand the motivation behind either of this, I don’t feel like successful people are doing either of these things.

And yeah, I don’t feel like it behooves millennials to sit there and say, “Well we’re obviously the first generation that works this hard for this amount of money, here’s a cherry picked stat to support what I’m trying to say.” It sure doesn’t behoove other people to be like, “Well, here’s four cherry picked stats that show you’re full of it and by the way I made it on nothing. I lived on minus $5 for the first three years of my life and look at me now.”

I don’t understand this whole back and forth and I feel like it’s really unproductive and I’ve really seen a lot of minds changed on Facebook. I see it all the time that people change their minds, they go on there, no one has ever changed their mind on social media. I’m fairly certain of this, whether it’s politics or who is more hard done by, no one, I have yet to see anyone be like, “Oh good point. I’ve completely changed my mind now.”

[0:13:40.1] PA: I kind of wonder how much this too is the unreasonable expectations that a lot of millennials come out of school with. They’ve been promised the world by their schools that they’re going to, they have to justify these huge student loans that they’re taking out or that they’re giving to this kids and so they promise them a world and, “You’re going to be making a lot of money.”

They come out with this unreasonable expectations of what they’re going to be starting out at. They come out with 30 or $40,000 worth of debt and they decide, “I’m going to work at an expensive city, I’m going to work at San Francisco at a starting salary of $30,000 a year or something,” and you just can’t live on that, this unreasonable expectations of what they’re going to be doing.

It’s kind of a compounded thing, there’s blame to go around to the institutions, ‘cause students themselves are having this unreasonable and crazy expectations of what they’re going to see in the job market and yeah, it’s just kind of a snowball effect.

[0:14:44.5] KP: I think social media is contributed to that too Peter. Because I’ve read a lot on sort of the mentality and psychology behind it, we tend to all post what we’re like most proud of or sort of the persona that we want to project on social media often. Then the keeping up with the Jones factor, I imagine it gets like exponentially raised when you can always see, “Oh my goodness, look at the engagement ring that they got.”

Now there’s pressure, everyone knows now how big the engagement is right? Or, “Man, look at the house they just got, that’s a beautiful house,” and everyone’s got housing envy. I feel like that’s always been there to some degree obviously, the phrase predates Facebook and Twitter but I think it’s made it worse. I don’t know, everything I’ve read seems to be in that direction.

[0:15:30.1]PA: It’s part of the “everybody gets a trophy generation”, everybody wants to have it and have it now. Whether they deserve it or not.

[0:15:39.3] MM: Well and one of the things I found interesting with this story was not only did she — she’s complaining about, “Well, I’m not making enough money to pay for housing and food and everything else in San Francisco,” which is a really expensive city and it is very hard to get by.

Then she posted her donation stuff because, “I’m having a hard time, now come donate to my cause.” There was that aspect of it too. That’s the thing. There are some days that I’m just sitting here and going, “What am I doing? Maybe I should just…”

[0:16:16.8]PA: It goes back to this idea too of nobody wants to sacrifice anything they get ached these days, they want everything handed to them. I kind of remember hearing about this story and they were going through this girl’s instagram or something along this lines. Here she is, living in this apartment that was $2,000 a month or something.

Her starting salary it was like $3,200 a month and then she’s eating out sushi every other night and she’s doing all these expensive things. She wants to live the lifestyle but she doesn’t want to have to pay for it basically.

[0:16:52.3] KP: Well and here’s the thing I didn’t understand and truthfully I don’t understand about whether you’re talking about San Francisco or Vancouver is okay, so she’s got a side gig as a freelance writer and again now I’m piling on picking on this poor girl. Let’s hypothetically, you’re a freelance writer since we have a few of those in our line of work.

Miranda, your lifestyle as a freelance writer, I’m going to go out on a limb here and say it would be a little bit crammed if you moved into the middle of San Francisco and started paying for a loft apartment and wanting to live life, and frankly you don’t need to live in San Francisco to do your job right?

[0:17:29.2] MM: No, and that’s actually kind of a funny story because I really like living in Philly and living an hour train ride from New York city and it made me happy to live there. When I got the divorce, when my husband asked for the divorce, I looked at the situation and I said, “Well one, I need support, I need my family support and two, I will be better able to care for my son if I move back to Idaho Falls and have half the costs.” And so that’s what…

[0:18:02.6] KP: Philly isn’t San Francisco.

[0:18:04.7] MM: No. My rent is exactly half what I was paying before and the house that I live in is almost twice the size of the apartment I had before. And so I’m paying half the price and I have twice the space for my rent. My food costs are lower and my transportation costs are lower and my power costs are lower.

So yeah, that’s one of the interesting things is you kind of have this weird conflict because on the one hand, you do have quite a few millennials who are minimalists and they are frugal and you can see that they’re — you know, look at you Kyle. And you can see that they’re not spending but on the other hand you have others who are different I guess, I don’t know?

[0:18:59.0] KP: Yeah, I mean like Peter said, there’s a sacrifice that has to be made at some point. Very few people can have it all right away and then if you can have it all right away, you’re probably are working a job that’s 80 or 90 hours a week and then you don’t have it all.

A lot of these folks like yeah, they’re thriving downtowns in San Francisco. I’m sure it’s a great fun place to be, I’m sure downtown Vancouver is gorgeous and it’s a fun place to be but like I truthfully, I don’t understand the premise of, “I need to live right here. Oh my god my rent’s too high to live.”

I don’t know, I guess it’s because I’ve always lived outside the mainstream so I have a completely skewed view and they probably think I’m insane living like a caveman I suppose. There is a world outside of these sort of meccas of hipsterdom that does exit, there’s great way to be had and even if they’re moderately just to be had, there’s a great standards of living to be had.

I think that’s overlooked a lot. So I know that I’ve revisited this point a few times on a couple of shows but looking outside of these sort of down town, very millennial fun lifestyles can really help you build for that future, whatever you want that future to be, it can really help I think.

[0:20:24.2] MM: So what are some things then — let’s move away from bagging on the millennials all the time and…

[0:20:31.5]PA: Oh but it’s so much fun.

[0:20:33.1] MM: I know right? It helps us ignore the own problems with us Gen X’ers right? The slacker generation.

[0:20:42.3] KP: I need to point out, guess what? The millennials didn’t raise themselves or maybe they did and that’s the problem, but someone is responsible for those guys, they didn’t just fully develop into 20 year old people that were obsessed with sushi and $2,000 rentals. That came about, someone projected that onto them.

[0:21:02.0] MM: Are you telling me that Gen X’ers are bad parents?

[0:21:07.2] KP: I don’t know if “bad” is the word? Mad that your kid didn’t get a trophy, what did you think was going to happen there young baby boomer, old gen X’er, like hello? That one’s going to have repercussions.

[0:21:22.2] MM: Let’s shift gears a little bit. What can you do to improve your money situation? Tom, what is the first thing that you think millennials ought to be doing to improve their financial situations?

[0:21:32.9] TD: Well one thing I actually read today, like just came out today that’s kind of a good sign is that millennials are increasingly turning to things like Betterment and Wealthfront or here, Wealthsimple. They’re turning to the robo-investors and it’s a good sign that partly because they don’t trust the big banks and everything like Kyle said earlier but also they’re just more tech savvy anyways.

So something like a robo-advisor is a perfect fit for them. Certainly if they don’t want to even deal with that kind of stuff then it really is a good fit and they are turning there, there is some hope, it’s not that they may not trust the big banks and everything but it’s not that they’re completely oblivious, they are catching on.

[0:22:23.6] MM: Yeah, for sure. One of the things that’s great about these new kind of robo-advisors and new investment opportunities is the thermal cost and you don’t need a lot of money to start. You can invest with your first job, you can get started investing and that’s one of the nice things about them. What about you Peter, what do you think something that millennials can do or really anyone honestly can do to start improving our finances?

[0:22:53.0]PA: One thing they can do is just start cracking away at that debt as fast as they can. It seems like that’s really one of the big issues that’s kind of holding millennials and everybody else back these days. In the past decade, this student loan indebtedness has gone up by 85% or something.

Really, start even before you get to that point and think about maybe trying to pay for your education in a different way or paying for it as you go or something along those lines. Once you get out of college, just start working on that debt as fast as you can, get it paid off as fast as you can. Otherwise it’s going to be an anchor that’s just holding you back.

[0:23:35.3] MM: Yeah, that’s one of the depressing things about the student loan debt is they’ve done the studies, say that people are putting off buying homes because of their student loan debts, they’re putting off marriage, they’re putting off children, they’re putting off things that you know, not everybody wants these things but people who do want them are putting them off because they feel like they can’t afford them because of all of that student debt.

I know in the past, I’ve been like, “Oh well, I’m not worried about my student debt and I’m not paying off my student debt fast,” but I was able to consolidate my student debt at a 1.9% interest rate. That’s not really an option for most of the kids getting out of school right now. The interest rates are much higher now than they were when I got off school. That’s a big deal. What do you think Kyle, what do you think is something that millennials should be doing to improve their finances?

[0:24:29.3] KP: I think millennials really need to leverage their tech savvy and just their comfort level with the Internet and just read. I’m going to name drop here a little bit. I was at a conference in Canada here and I got a chance to talk to David Chilton who wrote The Wealthy Barber which I think even got some traction in the US as well as Canada.

I said, “If you had one piece of advice for my students Mr. Chilton what would it be?” He said, “Just to read, read,” which is of course my students weren’t really too keen on following that advice. But suffice to say, there is more great information out there than at any point in human history and it’s so easily accessible. I know that we all have a lot of demands on our time, you can spare a couple of hours every once in a blue moon to catch up and benefit from reading, learning from other people’s mistakes, learning from other people’s reading.

You can read their summaries of books if you want and get 70% of the good information. I hate advocating for that as a teacher but I really think that’s so key that there’s just so much good stuff out there and if you put in a little bit of time, man you can see a massive benefit.

[0:25:38.2] MM: Yeah, that’s a very good point and I think too, the knowing your information and reading and getting to know that stuff can actually help you feel more confident in your money decisions. I think there is, especially when it comes to investing, we’re always talking about how important it is to invest. I think when we’re talking about investing, confidence is a real, real issue. So yeah.

So I think we’re about ready to wrap up here and we go around and we do our final word and let’s go ahead and do that now, let’s start with you Peter, what is your final word on millennials and money?

[0:26:23.3]PA: Well, final word is this: Millennials they don’t have everything going against them, they do have things going, not as many of them have credit cards as some of the other generations do. I think study in bank rate that 60% of millennials don’t even have a credit card at this point. Part of that maybe because they’re less trustful of big banks and stuff like that.

What they can do is harness that credit adverse nature and use it to their advantage and pay off their debts. Do your best to not try to live in the moment and spend money at everything that comes your way because we’re in such a consumer culture this days, it’s so hard to get away from that. Have some sacrifice, don’t do everything, don’t spend money on everything, do some sacrifice and think about your future.

[0:27:19.4] MM: Okay, and what about you Tom? What is your final word?

[0:27:23.2] TD: Well here in Canada I see a lot of bad things coming, the real estate is starting to go down, employment rate’s getting worse. Whether it’s advice to millennials or maybe to everybody, if you have high debt, that’s certainly something you should take care of first. Certainly don’t feel entitled to your job because it could be gone the next day. Just take care of your money, get that debt down and be prepared because yeah, it might get a little rocky here in Canada for the next few years.

[0:27:53.4] MM: What about you Kyle, what’s your final word?

[0:27:56.1] KP: I’m going to strike a might blow back on behalf of the millennials here and say, statistically speaking, what you should do is look at what your parents did and if you do the opposite, more often than not, you should probably be okay. So if they bought a large house, buy the small house, if they got a new car and leased it or they bought a new one every five years which they statistically probably did, do the opposite of that. And if you just do the opposite, most of you will probably be better off.

[0:28:22.3] MM: Great point. All right, well thank you for joining us today on The Money Mastermind Show, you can check us out at moneymastermindshow.com. Don’t forget to go ahead and subscribe to us on iTunes and Stitcher and tweet at us, send us a question, whatever and we’ll try and pay attention to it and maybe answer it someday. But yeah, so go ahead and check us out, we also have a Facebook page and until next week, be good with your money.

ANNOUNCER: Thanks for joining us on the Money Mastermind Show, get more information at Moneymastermindshow.com. Don’t forget to subscribe to the show on iTunes and YouTube and follow us on Google Plus.

[END]