6 Ways That Millennials are Better Off Financially Than Their Parents
One of the common themes in the media these days is the plight of the Millennials, also known as Generation Y. This is the generation of people born between the early 80s and early 00s to which Finn and I belong.
Many articles have been written lamenting the fact that Millennials are the first generation to be worse off than their parents. It is often said that our parents, the baby boomers, had some pretty amazing luck within their lifetimes. They got to have high-paying and stable jobs, defined-benefit pension plans and cheap homes that exploded in value. In contrast, it’s often said that we have to make do with low-paying and precarious jobs, no pension plan whatsoever and houses that are overpriced and beyond our price range.
There is truth to a lot of this. Our parents did benefit from some phenomenal growth in the value of their homes, and many of them did have higher-quality jobs. But there are two sides to every coin.
There are also many ways in which we are better off financially than our parents were. In other words, we have certain advantages compared to them which enhance our ability to build wealth.
Here are six financial benefits that young people today should be grateful for - and take full advantage of if they don’t already.
The above graph shows the evolution of mortgage interest rates in the US and Canada over the last few decades (since 1971 for the US and since 1965 for Canada). As you can see, we are currently experiencing the lowest interest rates we have had during this period. In fact, the entire period since 2004 - the time when the first Millennials were reaching an age when they might buy a home - has had lower interest rates than any other point in the graph.
Since baby boomers are the generation born between the mid-40s and the early 60s, most of them bought their homes and had mortgage debt in the 70s and 80s. During those two decades, interest rates were significantly higher than they have been in the new millennium. The lowest rate was in 1972 – 7.4% in the US and 9.2% in Canada – and it was still more than twice as high as the rates in 2012. After 1972, rates rose steadily and peaked in 1981 at an incredible 16.6% in the US and 18.2% in Canada. They stayed above 10% for the rest of the decade.
The majority of baby boomers had mortgages during this entire period and hence the misfortune of paying these high rates. Many boomers continued to have mortgages into the 90s, when rates were still much higher than they have been for Millennials.
Millennials are very fortunate to be benefitting from such historically low interest rates. Rates in the US today are between 3.5% and 4% for 30-year mortgages. In Canada, rates for the most common term of five years are around 2.5%. We recently got a 1-year mortgage for 1.79%. 1.79%!! That is practically free money.
These are rates that our parents could only dream of, and their mouths literally drop when they hear about them. Mortgage interest is a huge lifetime expense for most people, and thanks to low interest rates, our mortgages take a much smaller chunk of our wealth than they otherwise would. I, for one, am grateful.
Thanks to technological advancements and the offshoring of manufacturing, many items cost less today than they did in the 70s and 80s. As a result, people today can spend much less of their income on these expenses, and more of their money can be directed to savings.
Prices for two of the most essential expenses, food and clothing, have decreased. According to data from the Bureau of Labor Statistics , spending on food and clothing went from being 23.6% of total household spending in 1972-73 to only 17.3% in 2002-03, a decrease of 6.3%. Food prices have fallen due to increasing agricultural productivity and improvements in transportation; clothing is cheaper as a result of outsourcing to countries with cheaper labour.
Today, we are also able to enjoy lower prices for most other consumer goods. Electronics such as televisions, computers and cameras are ridiculously cheap compared to what they were in the 70s and 80s. Pretty much all household goods have gotten cheaper due to overseas manufacturing and increased competition.
Buying basic necessities and near-necessities costs less today than it did 40 years ago. This is one of the factors that gives frugality its immense power today. With minimal spending on essentials, the key to achieving financial freedom becomes how you manage your non-essential spending - and fortunately, that is something that is entirely within your control.
Today’s consumers are able to be much savvier due to the sheer amount of information that is available to them through the internet. This is a benefit that our parents simply didn’t have for most of their lives. Here are some of the ways that the internet helps us control costs:
- Most retailers have websites that display their products and prices. In this day and age, we can do most of our price research from our computer chair, which is way more efficient than the old alternative of having to call or visit all the stores. Because comparing prices online is so easy, we do much more of it and are more likely to find and buy the cheapest option.
- Online forums allow for exchanges between people regarding different companies’ offerings and available deals. Consumers can thus access advice from a broad audience and become aware of opportunities to save money that they would never have known of otherwise. A good example of this is the forums of the Canadian website RedFlagDeals (RFD), which are a treasure trove of good advice about saving money. When I am trying to find cheaper alternatives for a good or service, I often search the RFD forums for relevant threads.
- The internet has websites that are there specifically to facilitate price comparison. For example, when we were looking for a mortgage, we used RateHub.ca to explore available mortgage options and ended up finding our great rate there. There are even websites like camelcamelcamel which will watch the price of a product on a site and send you an alert when it reaches your desired price.
- Online product reviews - what did we ever do before these?! The internet allows us to learn about many people’s opinions and experiences with a product before we commit to it. This allows us to be much more confident about a purchase before we make it and reduces the risk that we will be unsatisfied and end up replacing the item at an additional cost.
The ability to actually buy products online can also save money, since it often allows people to buy from less expensive vendors who can keep their prices low due to reduced overhead. It is also possible to cut out the middleman or buy from other countries where prices may be cheaper - for example, a friend of mine bought a beautiful and cheap wedding dress directly from a seamstress in China.
Millennials have an infinite amount of entertainment at their fingertips. This was not at all the case for baby boomers, who had a much more limited array of entertainment options. The result is that people today can have a very small entertainment budget.
Here is some of the amazing entertainment we have access to that we may sometimes take for granted:
- An endless amount of articles and posts on every conceivable topic, accessible at the click of the button
- Free books online, especially classical books (e.g. Project Gutenberg )
- An infinite supply of video entertainment on YouTube
- The ability to stream and/or download books, TV shows, movies and documentaries - often for free or sometimes for a small fee
- Free courses that can be taken online (e.g. Coursera )
- Through services such as Netflix , shomi ,craveTV or Hulu , access to a mountain of television shows and/or movies which can be watched on-demand for a small monthly fee
- Online resources for learning new skills such as learning a language (e.g Duolingo )
- Due to DVR/PVR machines as well as the availability of content online, the ability to watch TV shows when we want to, and not only at a scheduled time when they air. For most of their lives, baby boomers did not have this luxury.
- Through email, text/video chat, social networks and message boards, the ability to communicate with people from all over the world – both friends and strangers
- Games that can be played online or on your mobile device
- Online instructions and advice related to many hobbies, which make it easier to try them out and often make them more enjoyable once you’re already familiar with them
As a Millennial, I can honestly say that the concept of boredom is foreign to me - I simply cannot conceive of being bored with the massive volume of content available online. As a result, I am rarely searching for entertainment and far less likely to feel compelled to spend money to get it.
In the past, options were pretty limited for selling your used goods. Today, the internet has completely transformed the market for used goods, opening up many possibilities for recouping some of your investment when you no longer have use for an item. Websites such as Craigslist and Kijiji connect you to many potential buyers in your local area, and sites such as eBay connect you to buyers around the world.
Just as importantly, you can now buy many items used instead of new, which often saves 50% or more of the cost. For some categories, such as furniture and equipment, this can result in truly significant savings. There are also groups which facilitate getting items for free. We really love the Buy Nothing Group - check it out if you haven’t already!
The internet has also facilitated the sharing economy. Innovations such as Airbnb and Uber allow us to get the same services - accommodation and transportation - for cheaper. This trend is showing no sign of slowing down. Airbnb and Uber also provide people with an opportunity to earn some additional income from assets they already own.
The internet has made it easier for a person to become knowledgeable about personal finance.
There is an abundance of websites and articles about personal finance, and a simple search can lead you to lots of information about any financial topic. When we were preparing to buy a house, the internet was an amazing source of information that equipped us to confidently deal with all of the financial aspects of buying a house. The internet has helpful tools such as calculators and questionnaires which help you apply financial principles to your own situation. There are also automated tools for tracking your spending (e.g. Mint , Personal Capital ), which is crucial for achieving a high savings rate.
Through blogs and forums, you can read about how other people manage their money and get some good ideas. This is especially valuable since money is often a taboo topic in real life. The anonymity of the internet allows for much more open discussions, and we all benefit from it. The internet also allows people to be exposed to philosophies such as frugal living and financial independence which rarely come up in regular day-to-day conversations or the media.
Every generation has its opportunities and its challenges. What often distinguishes financially healthy people is that they make the most of the financial opportunities and don’t dwell excessively on the difficulties. All of the above factors become much more powerful when a conscious effort is made to capitalize on them.
Facing low rates on their mortgages and low prices on many essentials, it is critical that Millennials do not respond by increasing their spending on non-essential items. Instead, this is a perfect opportunity to control non-essential spending and see significant savings. Knowing that there is so much entertainment available online, there is no reason to pay money to get the exact same entertainment elsewhere, or to overpay for different but not much more satisfying forms of entertainment.
Used items which still have value should never be thrown out; used options should be explored for every purchase. Finally, the amazing wealth of financial information available online is there for the taking - take it! Being well-informed can make all the difference between financial security and financial misery. Our experience has been that if you make the effort to position yourself as best as possible financially, you will not be disappointed.
What do you think about the baby boomer vs. Millenial debates? Which of these financial advantages do you appreciate the most?