There is a general misconception that millennials have poor financial habits than baby boomers. This belief is connected to their tendency to overspend on social activities and reluctance to invest in the stock market. Contrary to these popular beliefs, several studies comparing Millennials vs Baby Boomers revealed that millennials make smart money moves than the baby boomers.
A survey by T. Rowe Price compared the saving and spending habits of 1062 millennials and 1038 Boomers. The study revealed that millennials were more likely to save and live within their means than baby boomers. The following is a comparison of the financial habits of millennials and baby boomers:
Creating and Sticking to a Budget
Eight out of 10 Millennials prepare a budget compared to six out of 10 baby boomers. Although the latter are regarded as better financial managers, they do not give much priority to budgeting. They only think about it when they enter retirement. Millennials use budgeting apps to keep track of their expenses and monitor their spending patterns. These smartphone apps help them stick to their budget. Boomers are hesitant to use these apps unless someone teaches them how to use them
Millennials spend money on experiences and events that develop them professionally and physically. They prefer to spend money on international business travels or in their personal well-being. They are also active participants in charity events. In contrast, baby boomers focus on showing off their material wealth for prestige. They buy the latest cars, suits and other material things as a way of “keeping up with the Jones’.
Millennials earn less income than the baby boomers. However, their smart money saving skills help them to spend less and save more. Research shows that millennials are more likely to have a written plan of their financial goals than boomers. They put more emphasis on non-retirement savings goals than retirement savings. The non-retirement goals include going on vacation, home ownership, and education. By having a written plan, they can easily track their progress and manage their savings.
Also, millennials have come up with “collaborative consumption techniques” that allow them to rent assets. Instead of purchasing items, they opt for sharing to save on costs. With innovative products such as Uber and Airbnb, millennials can use assets at a lower cost. By sharing resources, they have extra money to pay debts and save for retirement. The sharing economy helps millennials save time and focus on other productive activities.
Investment Decisions of Millennials vs Baby Boomers
When making investment decisions, millennials are more tolerant than baby boomers. Many baby boomers are either retired or nearing retirement, and therefore prefer low-risk investments. During the economic recession, most boomers lost their investments in the turbulent stock markets. As a result, they prefer making calculated moves when investing their money.
Millennials make better investment decisions since they are better informed. Millennials have the advantage of an unlimited supply of investments information on the internet today. They are prepared to make investment decisions on their own or with a little help. Although they are better informed, millennials are not investing enough. They are either starting too late or not investing at all. This may be attributed to the huge student debts that take a big proportion of their income.
Seeking Professional Help
Millennials are willing to consult financial advisors when making major decisions. They may seek help when buying a home, receiving an inheritance or saving for retirement. They are more concerned about getting professional advice rather than making such critical decisions on their own like their parents do. Baby boomers regard themselves as experts in things that they have done previously. They are less likely to seek professional help unless it is absolutely necessary.
The growth of technology has changed how experts deliver financial advice to the advantage of millennials. Robo-advisors make it easier for millennials to get information on wealth and investment management, instead of having a sit down with a financial advisor. Millennials leverage the growth of technology to find experts online and pay less money than they would have paid for a one-on-one consultation with an expert.
There are varied expectations of millennials vs. baby boomers. According to the study by T. Rowe Price, 52% of baby boomers plan to retire at a specific age, while only 36% of millennials target to retire at a particular age. However, more millennials have set retirement savings as one of their top priorities. They also give priority to paying outstanding bills to avoid paying interests.
When comparing the retirement saving habits of millennials vs baby boomers, millennials have increased their retirement savings in recent years and are on track to catching up with their seniors. Actually, more millennials consent to the automatic enrollment in retirement savings plans. Also, some millennials wish their employers enrolled them in a higher contribution rate.
Most millennials have large amounts of outstanding students loans that take a significant proportion of their income. Despite having low incomes, millennials are more concerned about managing debts and living expenses. They are better debt managers than baby boomers and therefore, more likely to pay student loans and credit card bills on time to avoid interest payments.
Baby boomers are considered the wealthiest generation. They have a lot of money to spend on luxury items and invest in retirement funds. Also, they are less concerned by interest payments and are more likely to delay in paying debts.
From the comparison of millennials vs baby boomers money habits, Millennials carry the day. Despite earning less income than baby boomers, they have managed to take control of their finances. Their ability to leverage on technology has given them an edge since they can track expenditures real-time. Baby boomers are reluctant to try new technology unless someone teaches them how they work.
Also, millennials have come up with more innovative techniques to save money. Technologies like Uber for transport and Airbnb for accommodation help them share costs of resources and remain with extra money for other goals.