January 14, 2019

Don't Chase Millennial Assets: They Don't Have Any

John Lohr

John Lohr
Executive Director /The MoneyCulture Initiative

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Millennials:  The youngest M is 13; The oldest is 36. (BD 1982-2005), and they are head over heels in debt.

The average Millennial salary is $35,592.

Forbes examined M savings by age.   From ages 13 to 31, it’s in the red.   31 is the first age Millennials show any savings: $2000.  At 36, the number rises to nearly $20,000.

Sure these are averages, and some are higher, but some are lower.  But still, there is nothing to suggest that this generation will represent the next “greatest transfer of wealth in the country.  Their parents in the same boat, some will leave a legacy, some will not.  Most will not. The impending retirement crisis facing those parents is a story for a different article.

Millennials represent 24% of the US population, and 39% of the working age population.  For those advisors chasing millennials, you are all after the same 2.4% of the US population and 3.9% of the workers.  If 10% of them are destined to be affluent, that’s not the big market some Advisor website are touting.  And it’s going to take years.  So, don’t even think about talking to Ms Average Millennial about building a retirement plan.

Don’t try to get them as clients; try to help them.

To an M  (less than a “T”) they all sing the same tune.  Their biggest financial issue for the under 50 year old is the hangman’s noose of STUDENT DEBT.  LOOK AT THE FACTS.  

1. Americans currently owe a combined $1.48 trillion on their student loans.

Student loans are now the largest form of consumer debt in the U.S. other than mortgages—exceeding car loans and credit card debt.  It’s collectively owed by 42 Million Americans.  The delinquency rate is 11.2%

2. Current student debt varies widely by state and college.

The average graduates’ likelihood of graduating with debt in 2016 ranges from 43% to 77% depending on state.  That means the vast majority of young graduates are currently saddled with debt. 

3. The average student loan balance is around $34,000.

The average among Gen Xers—or those who are between 35 and 49 years old—is even higher at nearly $40,000. Young people between 18 and 20 owe less than $12,000 on average. That’s probably because they haven’t finished borrowing for school or don’t owe as much in interest yet.

4. The amount people owe varies widely.  Around 7% of borrowers owe more than $100,000 – which equates out to an entire 1% of the country’s population.

5. People who live in Washington, D.C., have the highest average student loan balances.  Maryland is second, Georgia third.  North Dakota, South Dakota and Wyoming are the lowest.

6.  More than 13% of Americans have at least one student loan balance on their credit report.  On average, students have 4 loans each.

7. The number of borrowers defaulting on their student loans is at an all-time high.  1/6 of the people who have federal student debt (the equivalent of the entire population of 38 states) have stopped paying on student loans for 6 months or more.

THEY NEED HELP:  They’re not helping themselves.

The percent of all high school graduates from the class of 2017 who did not fill out the Free Application for Federal Student Aid was 36%.  It costs nothing to fill out the document.  The total amount the class of 2017 left on the table by not completing the FAFSA: $2.3 billion.

So, how can you help?  Here are seven suggestions to prevent it from happening to future generations.

  1. Incorporate student debt education when you discuss financial planning with your clients who have children approaching college age.
  2. Lecture at the local high school on applying to college and the consequences of borrowing to pay for it.
  3. Prepare a Chamber talk on the idea that it really doesn’t matter where a kid goes to school.  Yale or that high-cost Grinnell College in Iowa don’t benefit future wage earners unless your lifetime goal is bug time corporate law firm or politics.
  4. Sell the benefits of staying in State.  In your state, there are great schools at a fraction of the cost of the Pepperdine tuition.  UCLA, Virginia, North Carolina, Ohio State, That M school up North, Florida, Penn State, William and Mary, U CAL Berkley, Purdue, and on and on and on.
  5. Sit down with those parents soon to be college kid parents and go over the FASFA form.  No harm, no foul.
  6. Tell them and college kid to be to apply for every scholarship there is,  Millions of dollars are lost every year because kids don’t apply.
  7. Do it all pro bono.

And those debt-laden Millennials?  Well, here are seven things you can do: 

  1. Counsel them on refinancers.  Sure SoFi will refinance, but at what cost?
  2. There are ways to get parts of student loans forgiven, like teach school, join the military, public service or non-profit jobs, apply for the Income-Based Repayment Plan.
  3. Drill home the idea of compounding interest on debt.
  4. Read as much as you can about it.  The Department of Education has Federal Student Aid information on their website.
  5. Do not refer the student to a particular bank or refinancer website to learn on her own.  Those sources of money are not unbiased.
  6. Call her college financial aid department with her, and ask for suggestions.
  7. Do it all pro-Bono.

Comments? You can contact me directly via my AdvisoryCloud profile.

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