Millennials are facing difficulties as they attempt to navigate in stormy financial seas according to PwC’s report: Millennials & Financial Literacy— The Struggle with Personal Finance. The study was conducted in partnership with The Global Financial Literacy Excellence Center at George Washington University. Here are some obstacles the research identified, and steps that many young Americans can take to start remedying them.
Financial literacy. PwC says millennials possess inadequate levels of literacy around basic financial issues. According to their research, less than a quarter indicated a basic understanding of concepts such as asset pricing, inflation and risk diversification. And less than 1 in 10 demonstrated high levels of financial literacy. This deficit, unfortunately, can undermine retirement planning efforts.
Going it alone. Despite the fact that many millennials are not well-versed in financial literacy concepts, they’re also not consulting with qualified advisors in order to gain a better handle on their personal finances. In the PwC study, only 12% received professional advice on managing debt, and only 27% consulted with an advisor regarding their savings and investment goals.
Student loan burden. More than half of millennials reported apprehension over their ability to manage student loan debt. Even among those with household incomes above $75,000 a year, more than one-third expressed concern that they might not be able to repay their educational obligations. Two of three millennial respondents reported carrying at least one source of long-term debt — with more than 30% indicating more than one source.
Vulnerability to financial stress. Almost half of millennials in the study indicated that they did not think they could cover a $2,000 unexpected financial emergency. And almost 30% are overdrawing their checking accounts. This inability to cope with financial challenges can be crippling millennials in the long term — if it prevents them from saving on a regular basis toward their retirement goals.
Raiding retirement funds. While only 36% of millennials in the study indicated that they had a retirement savings account, 17% of those who had one reported taking a loan from it within the last 12 months. And 14% took a hardship withdrawal within that same time frame. Not being fully invested in the market can exact a tremendous opportunity cost — especially for millennials, as one of their biggest advantages is their longer investment time horizon.
Even though this research paints a concerning picture of the state of millennials’ financial affairs, there are steps that can be taken to help improve the situation. To guide them through this process, millennials should avail themselves of free financial advisory services offered through their employers.
Meeting with a qualified advisor regularly can go a long way toward avoiding potential missteps — by coming up with a plan to manage debt, handle financial emergencies and prepare for retirement. And being a generally tech-savvy group, millennials can leverage the plethora of resources available online to help remediate any financial literacy deficits hindering their efforts to improve their financial wellness.
If you’re a millennial struggling with your personal finances, know that you’re not alone and there are resources you can take advantage of to help move things in a more positive direction. One smart first step is calling to make an appointment with your NFP retirement advisor.
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