The finance and tech-savvy Millennial generation is largely responsible for the rise of alternative finance in the years since the Financial Crisis. However, while Millennials are often praised for their creativity and innovation in the field of finance, a new study by PricewaterhouseCoopers indicates a divergence among Millennials when it comes to managing money.
Not only are Millennials the brains behind many tech-driven alternative financial services and products, they also represent a large portion of the traditional bank customer base that has made the jump to using alternative services such as online lending platforms, neobanks, roboadvisors and cryptocurrencies.
While it’s easy to look at these forward-thinking and financially responsible Millennials and draw conclusions about the behavior of the generation as a whole, the new study reveals a large segment of the Millennial generation remains financially aimless and uninformed.
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According to the study of more than 5,500 respondents aged 23-35, only 24% of Millennials demonstrate “basic” financial knowledge. Respondents particularly struggled with concepts such as basic asset pricing, inflation and risk diversification.
Apparently this disturbing result is not due to financial apathy. The survey also found that more than a third (34%) of those surveyed indicated they are “very unsatisfied” with their current financial situation.
Just how bad is the situation for these Millennials? Nearly 30% of those surveyed admitted to over-drawing their checking accounts. In addition, nearly half don’t believe they could come up with $2,000 for an unexpected expense within a month’s time.
Weighed Down By Debt
Debt is one of the biggest financial problems for Millennials. In terms of student loan debt alone, 54% of those surveyed are concerned about their ability to pay off their loans. Even 34% of Millennials with comfortable household incomes of $75,000 or more worry about their ability to repay student loans.
These debt issues extend beyond economic and educational lines as well. Four out of five college-educated Millennials carry at least one source of long-term debt, and 44% of them carry more than one source.
Looking For Help In The Wrong Places
Where are financially distressed Millennials turning for relief? Unfortunately, many are turning to predatory or irresponsible sources such as payday loans or pawn shops. PricewaterhouseCoopers reports that this trend is “widespread” among Millennials, including those who live in middle-class households.
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Other Millennials are cannibalizing their retirement accounts to make ends meet in the near-term. Only 36% of Millennials have a retirement account to begin with, but 17% of those with one took out a loan within the past year. Perhaps more startling is 14% of Millennials with retirement accounts took out a hardship withdrawal within the past 12 months. That number is especially telling in a relatively favorable U.S. economic environment.
The good news for Millennials who feel like their finances are out of control is that the alternative finance revolution has produced more ways to responsibly get your spending and debt issues under control than ever before in history. Online lenders offer personal loans with lower interest rates than most credit cards and fairer terms than payday lenders or pawnshops. In addition, they are an excellent avenue for debt consolidation.
Millennials are more comfortable with technology and more highly educated than any other generation, so there’s no excuse for them to be struggling financially. The first step to long-term financial security is learning about the range of new options available and taking advantage of the alternative finance opportunity.