It's part of the American Dream that has started to seem more like a cruel joke: the idea that each generation would do a little better than the one that preceded it.
With a job market and economy that is especially unwelcoming to young people, millennials may seem to have the deck more stacked against them. However, they also have some advantages over the previous generation, in part by having the opportunity not to repeat their parents' financial mistakes. Here's a look at some of Generation Y's disadvantages and advantages when asking whether millennials will be wealthier than their parents:
Money challenges millennials have to overcome
Here are three of the main challenges facing the current generation coming out of school:
1. Student loan debt
Concern over student loan burdens is not just youthful angst - the problem is very real. Student loan debt outstanding has doubled in just seven years, so young adults today are starting out in a bigger hole than previous generations.
Still, since most of this debt is government-backed, many of these borrowers can avail themselves of programs that limit the percentage of income they are required to pay. There is also the chance to forgive a portion of the debt after a specified period through this particular payment plan.
2. A tough job market
The headlines say that employment has improved, but that's just not what many young adults are experiencing. They aren't imagining the problem. Unemployment for people aged 20 to 24 is more than twice the unemployment rate for people 25 and over. To overcome this, young workers need to be flexible. Be willing to get your foot in the door where you can, rather than holding out for your dream job. Also, employment varies greatly from state to state, so be willing to relocate if necessary.
3. Slow wage growth
Even once they obtain a job, slow wage growth would seem to limit wealth potential for millennials. Even so, learn prudent money habits for making the best of what you are earning, rather than overspending the way many of your parents did. Consider putting money in a high interest savings account to build your finances.
Financial advantages millennials have over previous generations
On the other hand, here are four financial advantages young adults have over their parents:
1. Low interest rates
Since younger people have not had a chance to accumulate savings, low interest rates work to their advantage by making their debt more affordable, while older savers have seen their income plunge as a result.
2. No long-term debt addiction
Student loan debt may be a problem, but auto loan debt is also a growing issue, with outstanding loans crossing $1 trillion for the first time in 2015, according to the Federal Reserve. Student loans are a single hurdle to overcome. The older generation has built itself multiple debt hurdles.
3. Up-to-date skills
Many middle-aged workers have found the job market has passed them by. Younger people have fresher skills. As they start to gain a little experience, this will make them more competitive in the job market.
By failing to have adequate retirement savings, the older generation has squandered much of the time it takes to accumulate wealth. Young people have the opportunity not to repeat this mistake.
In the end, building wealth depends only partly on how much money you make. Ultimately, it comes down to how much they can save and grow. The parents of millennials have largely done a lousy job of preserving their financial resources, meaning that the next generation has a very good shot at being wealthier, if they can just be smarter with their money.
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