Millennials are overconfident and under-prepared when it comes to managing their money, according to new research funded by the National Endowment for Financial Education® (NEFE®) and conducted by George Washington University. They consider themselves far more knowledgeable financially than they actually are.
“Millennials are known for having unrelenting belief in their own abilities. This generation is diverse and highly educated. However, their overconfidence puts them in an extremely fragile financial position, and sadly, they don’t realize it,” says Ted Beck, president and CEO of NEFE.
Only 24 percent of respondents showed basic financial literacy in the study, with just 8 percent showing a high level of knowledge. Yet, 69 percent gave themselves a high self-assessment of financial knowledge.
“What young adults don’t know about money can hurt them,” says Beck. “This is our opportunity to reach them with relevant financial education to help close the gap.”
Financial Strengths: On paper, millennials are highly engaged in their financial lives. “It’s time to stop defining this generation solely by their student debt load. The picture is more nuanced,” says Beck.
The majority (88 percent) are banked, and 51 percent have a retirement account. Over 40 percent own their homes and one-fourth have investments in stocks, bonds or mutual funds.
Debt: However, on the other side of the balance sheet, millennials are heavily indebted and borrow against their assets. The majority (53 percent) feel they have too much debt. Two-thirds have at least one source of long-term debt (student loan, home mortgage, car loan), and 30 percent have more than one source of outstanding long-term debt. More than one-third have unpaid medical bills. About 20 percent of those with a self-directed retirement account either took a loan or made a hardship withdrawal in the prior 12 months.
“Young adults may not understand the consequences of their actions, such as how taking money out of their retirement accounts now has an exponentially negative effect on account balances in the future,” adds Beck.
Financial Satisfaction: Young adults also don’t feel good about their finances. Nearly one in five (18 percent) are “not at all satisfied” with their current personal financial condition; only 6 percent are “extremely satisfied.”
Financial Fragility: Many millennials are financially unprepared to handle sudden economic shocks. When asked if they could come up with $2,000 if an unexpected need arose within 30 days, nearly half (48 percent) said they probably or certainly could not come up with the funds. Less than one-third (32 percent) have set aside funds to cover three months of household expenses. Nearly 30 percent of those with bank accounts had overdrawn their account in the prior 12 months.
“The financial picture isn’t all bad,” says Beck. “But it’s not where it needs to be.”
For complete findings of the research, click here.