Millennials and Money: It’s Not their Fault

Darla Kashian’s advisory practice with RBC Wealth Management focuses on wealth and philanthropic planning for high net-worth families, foundations, and donor advised funds. Her community work focuses on inspiring generosity in giving through her service on the board of GiveMN and the Astraea Foundation.    Email: darla.kashian@rbc.com

Darla Kashian’s advisory practice with RBC Wealth Management focuses on wealth and philanthropic planning for high net-worth families, foundations, and donor advised funds. Her community work focuses on inspiring generosity in giving through her service on the board of GiveMN and the Astraea Foundation.

Email: darla.kashian@rbc.com



How many times have you uttered the phrase, “When I graduated from college…” only to be met with insistence from a recent grad in your life that things are just different now? 

I was recently sitting in a coffee shop in New York City when I overheard a table of modern-day Friendslamenting their financial situation and thought it was worth hearing them out. As they recounted to one another the struggles of making rent and paying down student loans, their conversation forced me to consider the question: Are Millennials living beyond their means – is it the avocado toast – or is the economy materially different in 2019?

While it’s tempting for us Baby Boomers to scoff at the financial challenges facing Millennials, if you take the time to listen and put things in context, you’ll see that the financial hurdles today’s young people have to scale are not only daunting, but in many ways larger than the ones that stood in our way.

Here is a snapshot of the work world I graduated into in 1988. The unemploymentrate in Wisconsin was 4.4%. My entry-level salary, as I held a degree in English from Marquette University, was $18,000. Adjusted for inflation, that wage would be approximately $38,000 in 2019. I graduated with about $20,000 in student loan debt, which is the current equivalent of $43,000.

Things have changed in the past 30 years. The cost of a college education has increased significantly. My tuition bumped over $10,000 during my senior year, meaning at the rate of inflation, tuition in 2019 should be $21,647. Instead, undergraduate tuition averages $43,350, nearly double the rate of inflation.

Remember when you bought your first house? According to the U.S. Census, the median price of a new home in 1988 was $112,500. Adjusted for inflation, that home should cost $238,795. In 2018, the median home sale price was $329,700. For young people, this increase in the cost of housing is a particularly devastating burden. Homeownership is made more challenging because of the accelerated cost of renting, making saving the recommended 20% down payment a nearly insurmountable challenge. Even rent is considerably more costly: Median monthly rent for a one-bedroom apartment in 1988 was $343 ($728.06, inflation adjusted), compared to $1,025 today.  

So, let’s do the math, as if I were a 2019 college graduate making $38,000 year with inflation-adjusted student loans, rent and related expenses, plus a 10% deduction for my 401(k). My monthly take-home pay is $2,212.92. A one-bedroom apartment is out of reach, so I find a place with roommates that rents for maximum 30% of my take-home pay, about $650 per month for my share. My goal is to pay off my student loans in 10 years, so that payment is $499 per month. Rent and student loan payments make up more than 50% of my take-home pay. This leaves about $1,050 for everything else, including utilities, cell phone, transit passes, food, personal care, clothing and entertainment. 

Instead of insisting that we had it harder or dismissing their struggles, it is possible to offer relevant and compassionate financial advice to Millennials, recognizing that life is, in fact, more challenging than it was 30 years ago. Here is the advice I give younger clients as well as clients who are trying to help their adult children cultivate financially responsible lives.

1.     Know what you spend:Budgeting apps like Mint and Acorns will help put your spending into perspective and help you understand where you can save a few bucks here and there. In the case of Acorns, you can then invest your spare change.

2.     Have a roommate/live at home: This is especially good advice if your family home and workplace are in the same community. Regardless of whom you live with, have a written understanding of the rules and responsibilities. And young people, pay rent. Parents, charge rent. 

3.     A side hustle: As the parent of young children, I know that I pay generously for adult (as opposed to teen) babysitters. If you can spend even five hours a week on that kind of gig, you can add significantly to your take-home pay. 

4.     Savings: It can be easier said than done to suggest that everyone have 3-6 months of essential expenses in savings, but the truth is that having some savings will bring peace of mind. Start with $1 a day. After one year, you’ll have nearly $400. While it sounds trivial, a recent Federal Reserve surveyfound that almost 40% of adults would struggle to cover a $400 financial emergency. So, putting away even this small amount could mean the difference between handling an emergency and finding yourself in dire straits. Moreover, in the long run, this habit can help you escape living paycheck to paycheck. 

5.     Maximize earnings: With unemployment at historic lows, now is the time to explore ways to grow earnings, either with your current position or by aggressively looking to move to one with better compensation. 

Millennials aren’t blowing money on frivolous things. A lot of them simply aren’t earning enough to make such spending possible. The Millennials I know are optimistic about the future, knowing they have a long-time horizon for earning and saving. A little support and coaching will pay greater dividends than mocking young people for eating avocado toast, which, you have to admit, is delicious.