Not that it’s much of a surprise, but the “major ripple effect” of debt is certainly something to behold, especially on 401k and similar retirement plans.
The latest Merrill Lynch/Age Wave study finds early adults have accumulated nearly $1.6 trillion in student debt.
These staggering levels have led to what the authors call “an evolved definition of financial success;” 60% of early adults define financial success as being debt-free, versus just 19% who say it’s being rich.
More striking, one-in-four early adults with a 401k have already made an early withdrawal, with the primary reason to pay off credit card and student debt.
The study, “Early Adulthood: The Pursuit of Financial Independence,” takes an in-depth look at the experiences and challenges of contemporary early adulthood: pressures of new roles and responsibilities; pursuit of education and burden of student loans; the power of intergenerational interdependence; and the ripple effects of debt.
Important findings include:
Parental financial support is the norm
Seventy percent of early adults have received financial support from their parents in the last year, and as many as 58 percent say they would not be able to afford their current lifestyles without ongoing parental support. The aggregate amount spent by parents today on their early adult children is enormous – over $500 billion annually2.
Social media is exacerbating financial pressures
With 68 percent of early adults fearing they are continually missing out (FOMO) on what their peers are experiencing and 49 percent feeling addicted to social media, early adults are comparing their financial accomplishments to their peers online. Eighty-two percent of early adults say they feel pressure to make a lot of money, and 60 percent feel pressure to buy things they cannot easily afford.
More highly educated and ready for the jobs of the future
For every 100 young men who completed college last year, there were 141 women. Today’s young women are better prepared to succeed in a workforce where more jobs are requiring a college education.
Investing remains the exception
Only 27 percent of early adult women surveyed reported holding investments outside employer-sponsored retirement plans, compared to 46 percent of men. Women report less confidence than men in managing investments5, and their biggest fear about investing is not about market volatility or rate of return, but rather not feeling they know enough about what they’re doing (41 percent of women vs. 28 percent of men).
With more than 20 years serving financial markets, John Sullivan is the former editor-in-chief of Investment Advisor magazine and retirement editor of ThinkAdvisor.com. Sullivan is also the former editor of Boomer Market Advisor and Bank Advisor magazines, and has a background in the insurance and investment industries in addition to his journalism roots.
