There is a bit of a war of words going on between the Baby Boomers and the Millennials when it comes to money. The Baby Boomers say that the Millennials ‘Should stop complaining about money and work harder rather than eating avocado on toast’. The Millennials believe that the Baby Boomers had it easy and it was their generation that has made it so hard for them.
In this blog, I look at some of the biggest changes in the two generations, Baby Boomers vs Millennials, in terms of money. This is important as if some of the trends carry on, then it will have a big impact on the financial future of our kids.
4 Areas of Financial Changes: Baby Boomers vs Millennials
1. Education costs
The cost of higher education has increased significantly everywhere in the world over the last 50 years. In the UK, Baby Boomers were given grants to cover the costs. Now, students take out massive student loans to cover these costs.
The costs of university have increased so much that the average student loan debt is $37,013 in the US and £45,000 in England. This means Millennials are very deep in the red zone in terms of money when starting their careers.
The crazy thing is:
More than 50% of people go to work outside the field in which they studied
In the UK, many people don’t earn enough to be able to repay their student loans in full (as you only repay once your earnings reach a certain threshold)
At some point, the cost of university will outweigh the benefits. People will start to say that for some degrees, they are better off just starting work on a lower salary as the cost of the loan will exceed the potential additional salary that comes from getting a degree.
Apparently, there are some students who are applying to top universities but are not actually planning on going to university. They are using the offer letters from universities to get the jobs they are after (such as working in FinTech). Their view is that most of the value of going to university is the pedigree* that comes from being accepted into a top university.
This approach means they are getting the job they want without the huge student loan debt that comes with going to university. If they don’t get the job they want, then they can still go to university. I think this is an interesting approach for those who aren’t planning on doing a vocational degree.
2. Housing costs
This is definitely the biggest difference between the two generations. For Baby Boomers, house prices were around 3 to 4 times the average salary. Nowadays, house prices are over 8 times the average salary. This means Millennials need to work twice as hard to get on the property ladder. Especially as the percentage that is required as a deposit is much higher (in fact, only 20 years ago, some people could get 0% deposit mortgages!).
This pushes Millennials to have to rent rather than buy a home (i.e. paying off someone else’s mortgage, who is likely to be a Baby Boomer). It’s easy to imagine that over their lifetime, a Millennial will end up spending on rent enough to pay off 3 mortgages but still end up without owning a house.
If Millennials believe they will be renting forever, then they lose some motivation to save for the long term. Remember, when you have a mortgage, most people are paying off the capital and this is a form of automatic long-term savings. Therefore, not only are they losing out on owning a house, but they are also not using a tool which focuses them to save for the long term, i.e. unless there is a replacement tool to encourage Millennials to save for the long-term, then they will be even worse off than Baby Boomers.
Luckily, there are some new initiatives, such as part-ownership, which are lowering the bar to enter the property ladder for future generations.
3. Retirement savings
Many Baby Boomers would work for the same company for many years. Part of the reason was due to the amazing retirement benefits that companies offered. Companies wanted to look after their loyal workers after they had retired. Many of these companies wanted to make sure that if their employees worked for 40 years, they would retire and still get two-thirds of their salary until they died (a ‘Defined Benefit Pension’). This meant that Baby Boomers didn’t have to think too hard about their financial future, as the company they worked for was looking after them.
Over time, as people started to live longer, companies felt this benefit was too expensive. Nowadays, companies offer much lower retirement benefits. This means that if Millennials want an income after they retire, they have to save a lot more themselves. The sad part is, that there is very little education regarding the amount of money needed for retirement. Many Millennials are not thinking about their finances in retirement and very few will ever save enough to mean they can retire and still get two-thirds of their salary until they die (like many Baby Boomers now have).
On top of that, Millennials are expected to live longer, so need even more money for retirement than Baby Boomers.
4. Spending habits
The three points above have highlighted some areas which mean it is fair that Millennials say they have it much harder than Baby Boomers when it comes to money. The points are completely out of their hands.
One area which the Baby Boomers highlight when talking about the financial situation of Millennials is their spending habits.
It is true that Millennials do spend a lot of money. Nowadays, people spend more money on eating out than on grocery shopping, with the average Millennial eating out 5 times a week (and putting a picture of their avocado on toast on Instagram).
Clearly, if you spend more, then it is going to be harder to save for a mortgage or retirement (something that Baby Boomers latch on to when talking about Millennials). That being said, there are some reasons for this increase in spending habits.
The first, as alluded to above, if Millennials feel that buying a house is never going to be an option given the increase in house prices, then there is a lack of motivation to save (and there isn’t enough education around retirement savings) and hence why not spend their money which isn’t going on paying for rent?
The second is that there is so much more pressure to spend than ever before. The advent of social media means adverts are being targeted at specific people based on their interests and personality. Also, once they see an advert, they can buy it straight away online without having to get their wallets/purses out (not like Baby Boomers who had to wait until the next time they went to the shops). On top of this, there is increased social pressure as we now all see others buying lots of nice things and sharing photos.
Challenging times ahead
The above shows that Millennials have a lot of obstacles compared to Baby Boomers when it comes to money. If these trends continue then it will be even harder for our kids when they grow up. This is why it is so important that we teach kids about money. We need them to learn to save early so they have a fighting chance to be able to get on the property ladder and save for retirement.
There is some good news. If our kids do learn about money, then there are more resources than ever to help them earn, save and grow their money than ever before.
Some advantages for our kids
If we can educate our kids to save their money for their future, resources available include:
Investment platforms that allow them to invest in the stock market easily and cheaply (no need for a stock-broker)
Budgeting tools which allow their money to be split into different pots (savings, spending on rent, spending on food etc)
Savings tools help them save a bit of money every time they spend (by rounding up to the nearest whole number).
There are now more books and online courses available to help them learn how to look after their money.
And of course, there is the book, Grandpa’s Fortune Fables, which means kids can learn about money many years before most people ever do :-)
With the cost of education and housing increasing, coupled with lower retirement savings and increased pressure to spend, the financial future of the next generations is more uncertain than ever. It’s now critical that we teach kids about money so they have a fighting chance of succeeding.
If you are speaking with other parents, help them realise just how important it is to start teaching their kids about money. Sadly, it’s not top of mind and the view of ‘I never got taught about money and I’m doing alright’, might not apply to their kids.
Thanks for reading!
P.S. Don't forget to subscribe below if you enjoyed this blog. Also, why not pick up a copy of my best-selling book, Grandpa's Fortune Fables, to help a child learn about money? You can now get the book as part of our Special Bundle Offer (with Games, Online course, Money Tracker)