The Gen Y Paradox

April 3, 2014 ( - Gen Y, Millennials, whatever you call the demographic cohort born between the early 1980s and early 2000s, they are the largest and most diverse generation in U.S. history.

As such, their financial behavior and attitudes will have a transformational impact on our economy for a long time to come, so it’s important to understand the strengths and weaknesses of Gen Y’s financial picture.

To better understand the key factors associated with Gen Y’s personal finances and how the financial services industry can better serve their needs, I worked with Annamaria Lusardi and Carlo de Bassa Scheresburg of The George Washington University, to examine this topic.  Our report titled, “College-Educated Millennials: An Overview of Their PersonalFinances” was just released this week. 

One of the defining characteristics of Gen Y is their optimism, so in that spirit, we’ll start with the good news about their financial profile. Here’s what we found.

More than 60% of college- educated Millennials report annual household income of at least $50,000. That’s 10% higher than the national figure of 50%, having an income greater than $50,000.

This generation is financially active: 94% of college- educated millennials report having a checking account, and 85% have a savings account. Forty percent report having investments in stocks, bonds, mutual funds or other securities.

They also own significant assets. Nearly half of the respondents own their home, and 14% own a second home or other real estate assets.

As well, Gen Y is concerned about their retirement, with 69% owning some form of a retirement plan whether employment based, non-employment based or both.

However, Gen Y is saddled with debt and often engages in high cost borrowing to get by, signaling a difficulty in dealing with both long- and short- term financial obligations. 

Eighty-one percent of college-educated Millennials have at least one form of outstanding long-term debt (anything with more than a year maturity), and 44% have more than one. This includes 40% of college-educated Generation Y respondents reporting car loan debt and about 40% reporting mortgage debt as sources of long- term debt. Additionally, student loans account for a major source of long- term debt, and nearly half (47%) of those with outstanding student loans are concerned about their ability to pay them off.

Anxiety about this debt burden may explain why many turn to worrisome borrowing methods. Twenty-eight percent of college-educated Millennials report having used one or more high-cost borrowing methods during the past five years, such as auto-title loans, short-term “payday” loans, tax refund advances, pawn shops, and rent-to-own arrangements. When asked if they had sufficient funds to cover expenses for three months in the event of an unexpected shock, less than one-half (48%) said yes.

While this generation is on track to be the most educated in U.S. history, they could benefit from guidance about smart financial management since most have not received any financial education through school or work. Proactively addressing the issue of debt management should be at the forefront of our higher education institutions, K-12 learning and the financial services industry to help Gen Y ensure both short-term and long-term financial stability and security; it is a driving factor behind my partnership with The George Washington University to better understand this cohort.

Communication will be key. As the father of three members of Gen Y, I know from experience that texting my kids is the best way to get in touch. The same follows for financial information—meet Gen Y where they are on their phones, tablets and computers. This is a generation that can benefit greatly from peer-to-peer engagement delivered through social media to foster recognition, interest, knowledge and action.

Gen Y has also grown up in an environment where discussing finances with family is commonplace, unlike generations before where money was a taboo subject. As such, Gen Y is looking to receive guidance that enables them to determine what is in their best interest and the tools to take these actions accordingly.  They want practice, not preaching.


By Paul Yakoboski, senior economist, TIAA-CREF Institute  

TIAA-CREF Institute is a division of Teachers Insurance and Annuity Association (TIAA), New York, NY.  

TIAA-CREF Individual & Institutional Services, LLC and Teachers Personal Investors Services, Inc., members FINRA, distribute securities products.   

NOTE: This feature is to provide general information only, does not constitute legal advice, and cannot be used or substituted for legal or tax advice.