Will Millennials Become the Lost Generation?

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Depending on how you look at it, being a millennial can be a blessing or a curse these days. The youthful generation is full of optimism and has several decades to grow their wealth. On the other hand, they are entering the real world with record amounts of debt and trying to build a career in one of the worst labor markets in history. If millennials aren’t careful about their financial decisions, they could become known as the lost generation.

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The first major obstacle hindering millennials is student loan debt. According to a recent  study by Fidelity, 70 percent of the class of 2013 graduated with debt, averaging $35,200 each. Half of graduates were surprised by how much student debt they accumulated and would do things differently if they had thought about the debt load ahead of time. In fact, 52 percent said they would have researched more scholarships or grants, while 48 percent would have started saving earlier. Twenty-four percent of respondents said they would have opened a dedicated college savings account in order to help them prepare for the financial burden.

Read more: Millennials: Indebted, Independent, But Optimistic About the Future

Nearly all recent graduates plan to pay back their student loans through their primary job, but simply finding a well-paying job in a related field can be difficult. Last year, a study by consulting firm McKinsey & Co. revealed that 45 percent of graduates from a four-year public college said they were in jobs that do not require a four-year degree. The retail and restaurant industries were among the least desired fields for students, but they end up employing four to five times the number of graduates who said they actually wanted to work in those industries.

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“One of the biggest challenges I see facing millennials and the younger generation is the different set of circumstances for getting into the workforce,” said Bob Gavlak, a certified financial planner and wealth adviser at Strategic Wealth Partners, in an interview. “The older generations didn’t come into the workforce with this much debt, which is a factor of school loans and the cost of an education. Millennials are coming out of college and they have anywhere from $20,000 to $100,000 in student loan debt. They’re immediately starting off in the hole and trying to prioritize their dollars.”

Even millennials who have managed to escape the pitfalls of debt and the labor market are struggling with the side effects of the financial crisis when it comes to investing for the future. With the financial meltdown still fresh in memories, many millennials are shying away from stocks. Cash accounts for 52 percent of the average millennial’s portfolio, compared to only 23 percent for other investors, according to a recent report from UBS Wealth Management. Millennials believe saving is the best option for their money, and only 12 percent said they would invest found money in the stock market. These findings make millennials the most worried of all generations.

“Millennials seem to be permanently-scarred by the 2008 financial crisis,” said Emily Pachuta, head of investor insights at UBS Wealth Management Americas, in a press release. “They have a Depression Era mindset largely because they experienced market volatility and job security issues very early in their careers, or watched their parents experience them, and it has had a significant impact on their attitudes and behaviors.”

There is nothing wrong with deciding that the stock market is not the correct place for your money and financial goals, but stocks and homes are increasingly the main wealth generator for Americans. The net worth of American households and nonprofit organizations grew $10 trillion to $80.7 trillion in 2013, up 14 percent from the prior year, according to the Federal Reserve. The value of stocks and mutual funds accounted for more than half of the gain, at $5.6 trillion, while home values contributed $2.3 trillion.

In contrast to older generations, younger Americans have only recovered about one-third of their wealth lost during the financial crisis. The average inflation-adjusted wealth of a family headed by someone younger than 40 was about $108,000 at the end of the third quarter of 2013, compared to $691,000 for a family headed by someone between 40 and 61.

Millennials will need to perform a balancing act when it comes to their personal finances for years to come, but one of the smartest moves they can make is researching financial issues sooner rather than later. Deciding to attend college and choosing a degree program should not be taken lightly, and it’s never too early to start planning for retirement. Millennials should also take steps to protect their greatest assets: health and future earning potential.

“It’s really hard to explain to a 25-year-old that you need disability insurance if you ever can’t work because they feel invincible. But it’s important to understand that their biggest asset at that age is the ability to earn an income — by far,” said Gavlak. “If they’re not taking the steps to protect that income, they’re really leaving themselves exposed. A lot of employers have group plans that cover a pretty good portion of your income if you get sick or injured, but some companies don’t. However, it’s something that’s relatively affordable and can make a lot of sense, especially if you have a family. It’s also important to have life insurance to cover the family.”

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