There have been several national news stories of late describing the financial condition of Generation Y – or, as it has become known, the Millennial generation.
This generation, from 18 to the mid-30s, began its working years as the dot-com bubble burst and it has witnessed terror attacks, two wars and a financial crisis whose impact on its employment prospects has been crippling. A recent Barron’s article cited the potential for this generation to be a catalyst for growth in the domestic economy as it reaches its prime earning years.
This may or may not turn out to be the case, but it bears mentioning in light of several circumstances that exist here in our local business community. Many of the readers of this publication could fall in to the Millennial generation and are now in a position where they have established careers or are building professional practices. Other readers might be principals at law firms, organizational leaders or owners of businesses that see this generation as a key part of their succession plan.
Regardless of your perspective, it will be an important step in the professional development of this generation that it establishes sound financial habits. These habits will enable the Millennials to achieve a solid career path and provide an opportunity for mentorship by many business leaders.
There are several unique challenges to the Millennials. First, many have substantial debt from their education and training. According to the Pew Research Center, student loans made up 15 percent of their total debt, a 114.3 percent rise since 2001.
The median debt of Millennial households with college-degree recipients is $114,504, according to Bloomberg. So, already this generation has used leverage to achieve its current level of education and now must balance paying down that debt and the responsibilities of family, home ownership and, in some cases, business ownership.
Second, the Millennials have experienced several waves of volatile stock market activity. Their reaction in general has been to be more conservative than one would expect for their age. According to the management consulting firm Accenture, 43 percent of Millennials describe themselves as conservative investors, USA Today says.
This conservative stance during the early years of employment can have a significant wealth effect later on. For example, foregoing growth in retirement accounts or college savings plans can require greater risk-taking later in life to meet established goals.
A third phenomenon related to the Millennials is the drop in household formations, home purchases and births. All of these indicate a generation trying to manage debt, navigate early career challenges and settle into family life. The impact of these indicators is numerous for those who are looking for the next generation of leaders to run our businesses and lead our communities.
There are several steps that both Millennials and their mentors can take to help facilitate the transition to economic leadership by this next generation.
First, the Millennials:
• Take the time to assess your current financial condition and write down several short- and long-term goals. Engaging a financial adviser or using one of many available financial planning software tools would be helpful.
• Manage your liquidity and available cash well, but don’t be overly conservative. Know how much risk you can take both inside and outside of your retirement plan.
• Closely monitor the risks associated with your debt and your profession. Have appropriate insurance coverage to take care of your family in the event of both death and disability.
• As your income rises, be aware of options to invest in the most tax-efficient manner. Examples would be the availability of qualified retirement plans through your employer or a Roth IRA.
For the Baby Boomer and Generation X mentors to these rising stars, financial conversations may be a unique opportunity to provide value-added guidance. To the extent you have seen financial successes (or pitfalls), the next generation is showing an inclination to more conservative financial management and could benefit from advice about how to manage risk.
The lessons of the last decade will have a lasting impact on the next generation of leaders. If their financial recovery coincides with that of the economy, there will be significant opportunities for them to both build their own wealth and assume the mantle of leadership from those who came before them.
Dennis Morton Jr., CFP, a partner and financial consultant with Concannon Wealth Management in Bethlehem, oversees the financial affairs of business owners, executives and families in the region. His practice areas include portfolio management, financial planning, estate planning and insurance. He can be reached at firstname.lastname@example.org.