Millennials Face Record $4 Trillion Debt Crisis — They're Struggling to Build Wealth, Homeownership And Retirement Savings

A Wall Street Journal analysis of Federal Reserve data reveals a concerning financial situation for people ages 30 to 39, which constitute the majority of the millennial generation. 

The demographic accumulated nearly $4 trillion in debt during the fourth quarter of 2022, reflecting a substantial $140 billion rise from the preceding quarter. The surge represents a 27% increase since late 2019, constituting the most significant upswing in debt accumulation since the 2008 financial crisis.

Contrary to popular belief, the escalating debt among millennials in their 30s cannot be solely attributed to discretionary spending on luxuries. While the rising costs of certain consumer goods, impacted by inflation, have played a role, it is not the sole driver of their financial predicament. The mounting debt is indicative of broader economic challenges faced by this generation.

To combat this trend, a reported 90% of millennials invest their money. This trend has largely helped propel the growth of retail trading platforms like Aries and Robinhood Markets Inc.

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Fed Data

The New York Fed's data reveals that millennials in their 30s are accumulating debt at an alarming rate and are struggling with credit card and auto loan repayments. Delinquency rates in these areas have soared, further compounding their financial difficulties.

Seventy-three percent of U.S. millennials in this age group live paycheck-to-paycheck, according to data from finance and commerce research hub PYMNTS.com. 

Adding to their woes, this age group faces an additional obstacle to wealth accumulation because of the historically low level of housing affordability. This exacerbates the challenges they face in building financial security and long-term prosperity.

Millenial Debt

A key factor in this story is how student debt has affected millennials' financial situation. According to a survey by Legal & General, more than one-third of millennials say their student loans have prevented them from buying a home. This shows that student debt has been a significant barrier for millennials in achieving their goal of homeownership and overall financial stability.

The interest-free payment pause, also known as forbearance, was initially implemented as an emergency measure in response to the COVID-19 pandemic under the Trump administration in March 2020. Over the course of three years, this relief measure was extended nine times. But with its expiration, borrowers must adjust to the reality of making student loan payments again.

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The Center for Retirement Research at Boston College reported that millennials need to catch up with earlier generations when it comes to savings. A significant portion of the 22- to 37-year-olds surveyed by LendEdu revealed a concerning trend in their retirement savings habits. According to the survey, a considerable number of respondents admitted that their monthly contributions to retirement savings were lower than what they spend on various consumer goods. Nearly half of them confessed to spending more on dining out than on saving for retirement. 

Getting Back on Track

For millennials, it's particularly important to explore potential solutions and avenues for improving their financial situation. One of the most important is to prioritize paying off high-interest credit cards as they often contribute significantly to accumulating debt. By focusing on cards with the highest interest rates first, people can save a substantial amount of money in the long run. 

Millennials can take several steps to enhance their savings and generate passive income. Exploring side jobs or freelance opportunities can provide an additional source of income, and building a strong investment portfolio are important.  

Simply investing small amounts in index funds or dividend-producing stocks can help compound even small investments over time.

Ultimately the goal is to reduce debt and increase income and assets. This will reduce ones monthly expenses while providing appreciable assets to increase your net worth passively. Similar to how bad financial decisions often compound so do good financial decisions.

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