Who Are the Digital Natives?

Millennial is the name given to the generation born between 1981 and 1996, dates now clarified by the Pew Research Center, although some have seen them as starting in 1980 and being born as late as 2004. Also known as Generation Y (Gen Y), the millennial generation follows Generation X, and in terms of numbers, has edged out the Baby Boomers as the biggest generation in American history.

Millennials are so named because they were born near, or came of age during, the dawn of the 21st century—the new millennium. As the first to be born into a digital world, members of this group are considered "digital natives." Technology has always been a part of their everyday lives—it's been estimated that they check their phones as many as 150 times daily—and serving them has been a major contributing factor to the growth of Silicon Valley and other technology hubs.﻿﻿ 

Research has shown the millennial generation to be the most ethnically and racially diverse in U.S. history. Gen Y tends to be progressive in their political views and voting habits and less religiously observant than their predecessors, Gen X.﻿﻿

Millennial Economic Picture


Three decades of stagnant wages were followed by the Great Recession (which left over 15% of those in their early 20s out of work),﻿﻿ and the income and the net worth gulf between the rich and the middle class is at its highest level since 1941.﻿﻿ Though the job market has improved in recent years, millennials face wage stagnation thanks in part to a 20-year trend of decreasing labor market mobility. Labor market mobility started to stagnate in the year 2000, just as the oldest millennials were entering the job market.﻿﻿ When workers don’t move around, both from job to job and from region to region, employers have more power when negotiating wages—a phenomenon called monopsony—which translates into employees getting paid less.

Unfortunately for young people whose careers coincided with this trend, it’s difficult to make up lost earnings from early, slow years. The effect of initially low earnings is compounded when subsequent raises are lower and people are less able to save and invest in ways that would provide income in the future.

Add to this financial reality the record amount of debt (mainly from student loans) this generation is carrying, and you have the makings of a severe economic dilemma. Although they have frequently been labeled as materialistic, spoiled and saddled with a sense of entitlement, it is not without justification that many millennials feel they will not be able to achieve life goals such as finding their dream job, buying a house or retiring until much later in their lives than previous generations did.

Having Living Expenses

The increasing wealth gap has meant that millennials start off with less household income. So, the most popular personal finance priority: to have enough money for day-to-day living expenses. Facing a sluggish job market, some millennials postponed working in favor of getting higher education or additional degrees; others make do with part-time positions or "gigs"; others who do get full-time employment find—no surprise—that entry-level jobs are at the bottom of the pay scale. So, naturally, they are more concerned about the present than the future and are struggling to establish a budget to help with other financial goals.

Becoming Financially Independent

Being free from the financial support of parents is one of the defining characteristics between an adult and a child. Living paycheck-to-paycheck, as many millennials do, doesn't make this easy. But gaining independence should be income-driven rather than frugality-fueled. While spending frivolously is never advisable, cutting back on your Starbucks intake isn't going to make your fortune. Accumulating wealth requires broader, long-term thinking.

For instance, if you’re making $30,000 a year, it will be nearly impossible to amass a large sum of money—even if you were to save all of your extra pennies. Focusing less on being stingy and more on broadening your earning capacity—via education or work experience, for instance—can help increase your worth and broaden your income horizons. 

Getting Out of Debt

Paying off student-loan debt has become increasingly difficult for many who are struggling with unemployment and low-paying jobs. While it's natural to make a priority of paying debt off as soon as possible, that may not be the best course. You need to have your money working for you, too.

One approach is to leverage what funds you have: Extend your college-loan repayment period to lower your monthly payments and use the extra cash to start building a retirement nest egg. In your 20s, you're at the time when compound interest is most in your favor because you have decades for even small amounts of money to grow. It's also a good time to take risks because if an investment does tank, your portfolio has time to recover from losses. 

Also, being in debt is not all bad. In fact, certain sorts of installment debt—like student or auto loans—can be useful. As long as you pay them in a timely, regular fashion, they help you establish a good credit history. You need a good history and credit score to obtain everything from a residential lease to a bank loan (and the most favorable interest rate possible for it).

Not only is it OK to have the right kind of debt, but it can also make a lot of financial sense. Take a basic capital investment, such as a car. You could pay out $15,000 of your hard-earned savings to acquire the vehicle outright, or you could obtain a low-interest auto loan and pay it off in small, regular installments. This way, you can enjoy driving your own car while more of your cash remains available to put toward something else.

Many millennials further incur credit card debt as they try to get themselves established during adulthood. Paying your monthly credit card bills on time is crucial to building your credit rating. Try to pay your bill in full at the end of each month to avoid racking up interest charges that can quickly snowball. Also, having several cards (but not owing anything close to your credit limit—charge no more than 35% of your limit on each card) will help your credit utilization ratio. This percentage is another important factor when you're being evaluated for a car loan or a mortgage.

Saving for a Big Purchase

Saving for big-ticket items, like a home of one's own, is another goal. Unfortunately, lenders are imposing stricter guidelines for major types of financing, especially mortgages. Therefore, millennials need to be able to make a substantial down payment if they want to purchase a home.

Back in the good old days, putting your hard-earned money in the bank was rewarded with decent interest rates that over time translated to an OK return. These days, the bank might be a safe place to store your cash, but it’s not necessarily the smartest place to put it.

Savings accounts cause you to lose money over time because their low-interest rates do not keep pace with inflation. They’re also subject to maintenance fees that can nibble away at your balance. It's not terrible to keep a small emergency fund in the bank—after all, it's still FDIC insured—but the bulk of savings should be elsewhere.

Planning for the Future

You’d think that retirement planning would be a no-brainer for this young group, which has watched parents and grandparents struggle so much with recessions, saving money and real estate booms and busts. They should know that Social Security and company pension plans are no longer reliable retirement income options—especially the latter, as private-sector employers eschew defined-benefit plans in favor of defined-contribution plans such as 401(k) plans, which shift much, if not all, of the savings burden onto the employee.

But they're lagging behind. To be fair, the way retirement savings plans are currently structured makes it hard for younger people to put money aside: Contributions are voluntary, tied to your employer, and if you are lucky enough to have access to an employer-provided plan, you’re even luckier if your employer contributes anything (nowadays, a company match of 5% of the employee's 401(k) contribution is considered a big deal—a far cry from the 100% that characterized matches in the 1990s). On top of this, the fraying of economic and social safety nets over the past 40-plus years has left retirement savings vulnerable to emergency withdrawals.

Can Millennials Retire?

Part of the problem seems to be that a good percentage of millennials—26% total—are hoping that either their lottery ticket purchases will pay off or that they’ll inherit money to use toward retirement saving, according to a 2015 survey by the Insured Retirement Institute and the Center for Generational Kinetics.﻿﻿ With such unrealistic expectations, a good quarter of them will likely struggle financially during retirement years.

Another cause for concern: A full 70% of the folks surveyed believed as retirees they’ll be able to survive on $36,000 a year.﻿﻿ The problem with this perception is that in 2018, the average yearly expenses for those ages 65 to 74 were $56,268 a year, according to the Bureau of Labor Statistics.﻿﻿

Furthermore, by the time Generation Y retires, that $36,000 won't buy what it used to: “With the cost of goods, food and housing at such inflated prices now, millennials will not be able to live off of $36,000 a year in retirement. Based on an inflation rate of 3%, the value of $36,000 today will be reduced to $14,831.52 in 30 years,” says Carlos Dias Jr., founder and managing partner of Dias Wealth LLC in Lake Mary, Fla. The disparity in perceived retirement funding needs could easily lead to financial disaster for retirement-age millennials.

A third factor that could leave millennials vastly underprepared for retirement is their avoidance of the stock market. A Bankrate survey found that only 33% of people under 30 owned stocks in 2016—largely due to a lack of funds, though the Great Recession and the market losses millennials lived through and watched the experience and this has left some of them fearful about investing in equities.﻿﻿ While their wariness is understandable, it's also detrimental: The stock market, over the long haul, has produced return rates hovering in the 10% range; and those who start investing young benefit from those extra years.

How Millennials Invest

While millennials can sometimes be wary about investing, the availability of social media tools is making it easier and more comfortable for this age group to learn—and in fact, a survey from asset manager BlackRock found that 45% of millennials are more interested in investing in the stock market today than they were just five years ago. In an effort to make certain they do not experience the same problems as previous generations, millennials are approaching investing in an entirely different manner from parents and grandparents. While Baby Boomers only put away an average of 11% for investing, millennials who can save put away as much as 18%, the BlackRock survey found.

Given their love for anything tech-related, it should come as little surprise that millennials are taking advantage of a variety of high-tech and social media tools that allow them to plow their wealth into the investment vehicles of their choice. They are now leveraging social networking platforms, websites, and mobile apps to do everything from following stock-picking tips to finding financial planners.

No longer are stock tips being passed along on the golf course. When millennials want to purchase shares, they do not reach for the telephone to ring up a broker (they tend to be somewhat distrustful of financial professionals anyway). Today, all it takes are a few clicks on an app for millennials to review a prospectus, get advice, and even commit funds, and they reward companies that let them do so. According to The Wall Street Journal, more than 30% of millennials surveyed recently stated they are more loyal to brands that are up-to-date in regards to technology. Factors such as social responsibility and environmental responsibility also frequently play a key role in where millennials place their money.

People under the age of 35 are more likely to take advantage of online tools for monitoring their investments, too, E*TRADE reports. With such tools, investors are able to review their portfolios anytime they desire rather than waiting for quarterly reports to arrive in the mail, and this group takes full advantage: The BlackRock report found that while Baby Boomers spend only an average of two hours reviewing their investments each month, millennials dedicate up to seven hours per month (small wonder that a report from Forbes found that over the past few years more than $1 billion has been funneled into tech-related personal finance companies, particularly startups that target young investors with mobile-enabled, user-friendly software and platforms).

New Breed of Investing Tools

Among the most popular social media tools currently being leveraged by millennials is Tip'd Off. This Bay Area-based social investing platform makes it possible for peers to help one another invest in the stock market. Here, both newbies and experienced investors are able to share information and tips. The platform even makes it possible for new investors to imitate the actions of investors with a proven track record.

Other apps that appeal to millennials include:

  • Wealthfront: A wealth management system, Wealthfront emphasizes asset allocation features with low fees.
  • FutureAdvisor: This online investment adviser offers the capability of managing investments automatically for a low fee.
  • SigFig: This free personal finance service provides users with automated investment advice.
  • LearnVest: New investors who may need assistance in creating a personalized financial plan can utilize this platform to get matched with their own personal planner.
  • Mint: Mint works by compiling all of a user's financial accounts into a single web-based platform, where they can be analyzed and monitored. Users are able to view all of their funds with separate account balances from their smartphone, computer, or tablet. In addition, Mint makes it possible to synchronize investments, bank accounts, and debit and credit cards, then categorize cash movement and expenses based on where it is spent.
  • Acorns: This investment app specifically targets millennials who might not have a lot of additional cash to invest. Acorns track debit and credit card purchases and round up those purchases to the nearest dollar, then takes the difference and puts it aside for investing. After reaching a total of $5, Acorns invests the money in investment portfolios selected by the user.

The Millennial Life View

Millennials often see their career trajectories and retirement differently from the way their parents and grandparents saw theirs. Frequently dubbed the "instant gratification generation," they don’t want to work first work for a big company and later try to do their own thing and enjoy life. They want to pursue ambitions now, whether that means going for a dream job right out of college, working for someone else's promising start-up or creating a location-independent business. They want a job that allows a great work/life balance while they're young so they don’t have to wait to travel, create their own non-profit or pursue hobbies. They may even be planning not to retire at all because they love their work.

Entrepreneur for Life

Many millennials see themselves working forever, but not because they expect to be forced into that situation by a bad economy or poor financial planning. They envision a lifelong career because of their passion for what they do.

“I have taken a very different approach than my parents,” says Michael Solari, a thirtysomething Certified Financial Planner and principal with Solari Financial Planning, a New Hampshire-based, fee-only financial planning firm with offices in Bedford and Nashua. “Initially, when I got out of college I took the normal path working for a large company, but after I got laid off in 2009 I decided to take my career in my own hands,” he says. “I love financial planning, so I started working toward creating my own firm.”

Last year Solari launched his company, which caters to young professionals. “I'm so happy with my decision, and I plan to work until I can't physically,” he says. He enjoys the ability to create his own schedule to give him a work-life balance, which is most important to him because he observed his parents being strapped to their companies. “Retirement is for people who are unhappy with their careers,” Solari says.

Even if you’re planning to work throughout your life like Solari is, you still need to save for retirement; you also need a safety net in case you can’t work forever because of illness or disability—or because you're pushed out of your job and can't find another. And if one day you change your mind, as priorities you’ll appreciate having the flexibility that retirement savings will give you. Making your money work for you is a good idea no matter what your life plans are. If you're young, it doesn't take much: Investing $100 per month in the stock market for the next 30 years would give you $117,000, assuming a 7% return; make that investment for the next 40 years and you’ll end up with more than $248,000.

Another smart financial move is buying long-term disability insurance while you’re young and healthy, which qualifies you for better premiums.

Extreme Early Retirement

Perhaps the best-known advocate of retiring incredibly early in life is Jacob Lund Fisker, creator of the Early Retirement Extreme website and author of a book by the same name. Fisker, a native of Denmark who became a permanent U.S. resident at age 31, writes that his current net worth is 64 years’ worth of his annual expenses and that his passive income is twice what he needs. He achieved financial security and a fulfilling lifestyle despite an unimpressive income and now lives on about $7,000 a year, despite being in the pricey San Francisco Bay Area.

Extreme early retirement isn’t for everyone. You must be willing to be “weird” by doing things such as limiting your household food budget to $50–$75 per person per month, not owning a car, foregoing cable television, eschewing a fancy wedding and pricey honeymoon, skipping grad school unless you receive a full scholarship and shunning expensive housing. By sacrificing a consumer-driven lifestyle, you may be able to amass a large enough nest egg at a relatively young age to be able to retire very early, even at 30 as Fisker did, and live off your investment income. Some ways to build that sizeable nest egg early in your life: a decade of exceptionally hard work, amazing entrepreneurial success or stock-sale proceeds from the startup you helped get off the ground. Needless to say, it's a formula not everyone can employ.

But if you can, and have the willingness to color outside the lines of what most Americans consider normal, retiring early means learning to create and follow a budget, and to invest in index funds and ETFs. You’ll have to get health insurance, but you might choose to self-insure in other areas. You’ll need an emergency fund (everyone does). You’ll also need to do the math to figure out how much wealth you need to accumulate, how quickly and the rate at which you can safely withdraw it to meet your lifestyle goals while preserving enough principal to keep generating income. But if time is more important to you than money, Fisker writes, you may find that you need much less than the recommended $1 million in retirement savings and can, therefore, accumulate your needed savings rapidly.

Partial Retirement Now

John Crabtree, 28, of Sodus, Mich., calls himself effectively partially retired. His work as a maintenance contractor at nuclear plants during refueling outages mostly takes place in spring and fall, giving him summers and winters off. “We live relatively frugally and save 30% of our income,” he says. “20% goes into tax-advantaged retirement accounts and 10% goes towards paying our house down early. We plan on having the house paid off before our children start college and have built enough wealth that we can retire by age 45.” He says that he really enjoys his job and may choose to work eight to 12 weeks a year in early retirement.

Living a partially retired lifestyle is the most moderate approach, but perhaps trickiest to plan for financially, because you have one foot in the work-forever camp and one foot in the extreme-early-retirement camp. Your pool of potential jobs shrinks because 40-hour work weeks aren’t for you; you basically need a part-time job with better-than-part-time pay so you can not only afford to work less now, but also save for the future. You might achieve this goal through freelancing on your own schedule or by running or working for a location-independent business that lets you combine work and travel, work and culinary school, work and volunteering, or work and whatever your vocation is.

As with retiring early, budgeting and minimizing costs are key; this will let you live off the income from fewer hours of work and afford any expenses associated with your non-work activities. Your long-term saving and investment strategy should be based on whether you want partial retirement now plus working forever—or partial retirement now plus a conventional retirement (or if you’re really extraordinary, partial retirement now and early retirement).

The Bottom Line

David J. Bradley, a 23-year-old entrepreneur and MBA student based in Providence, R.I., sums up how many millennials feel about retirement—and by extension, life.

“The retirement experience should be lived throughout life,” he says. “It might take some extra work and building passive income streams for the future,” but he doesn’t want to wait 40 years to enjoy the benefits. “I want to travel while I'm young, make my schedule fit what I want to do more than what others tell me to do, and live my ideal life,” he says. While his values force him to be mindful of how he spends his money, he focuses his discretionary income on taking at least one vacation each year and pursuing different activities and experiences as often as he can.

“That's what retirement, the golden age of our lives, is all about, after all, right?” Bradley says. “So why not start now if we can?”