Bearing witness to various financial crises during their lifetime, Millennials are put off and reluctant to invest. While they’re beginning to come around, a recent study determined many gravitate toward real estate over other common investments, and more prioritize becoming debt-free over saving for retirement.
In fact, when asked about the American Dream, the Bank of the West 2018 Millennial Study found this cohort ranked homeownership (56 percent), paying off debt (51 percent) and having the means to retire comfortably as the three most critical components.
A goal-focused bunch, four in 10 Millennials now own homes, and of those who do not, 92 percent are working toward it. Despite living through the housing crisis and acknowledging the inherent risk of depreciation, 59 percent hold fast to the belief it’s a good investment and makes more sense than renting.
But some experts think Millennials may be jumping the gun. In terms of purchasing property, their timing isn’t great. Home prices are skyrocketing, interest rates are rising and many homeownership tax breaks were eliminated by the recent Tax Cuts and Job Act.
“Millennials are so eager to become homeowners that some may be inadvertently cutting off their nose to spite their face,” Ryan Bailey, head of the Retail Banking Group at Bank of the West, said in a statement.
It’s an assessment that appears spot-on, as almost seven in 10 Millennial homeowners admit to having buyer’s remorse. Almost half (44 percent) are somewhat dissatisfied with the property, and another 41 percent have financial regrets, “saying they felt stretched too thin financially, it is costly to maintain their home or they should have put more money down from the start.”
Weighing in, Bailey adds, “The fact that nearly one in three Millennials who already own their homes have dipped into their retirement nest eggs to finance their down payment is alarming.”
The choice to partially fund real estate investments by borrowing their own money isn’t entirely shocking, however, since the group has made it clear they truly consider debt a four-letter word.
Data show 69 percent “believe that you have really only made it when you are debt-free.” As such, almost six in 10 pay off their credit card balances in full each month, and the same amount tend to avoid credit, instead paying cash, when purchasing things in-person.
“Debt doesn’t have to be a dirty word,” advises Bailey. “By responsibly borrowing the amount that is just right for their individual financial situation, Millennials can fund their homeownership dreams, while freeing up capital to invest in the markets today when they still have a long time-horizon on their side.”
But would they invest even if they could? Perhaps not, especially without a push. And according to them it has little to do with lacking financial knowledge.
Study results indicate most Millennials are confident in their ability to use common investment vehicles like stocks (66 percent) and private equities (47 percent). They have a seemingly good grasp when it comes to asset allocation, as well, “with 66 percent agreeing that the more time they have until retirement, the more aggressive they can be with their investing strategy.”
Yet, a reluctance to invest persists with many saying that living through a period of financial devastation is responsible for their tendency to invest conservatively (65 percent) and desire to keep their savings out of the market (66 percent).
This trauma is further manifesting as an under-utilization of investing accounts. Just two in five are taking advantage of 401ks or other workplace retirement vehicles; only 23 percent have an IRA or Roth IRA; and even fewer have managed accounts (14 percent) or brokerage accounts (12 percent).
“Millennials have been stuffing their savings under the mattress instead of putting their income to work through strategic investments,” said Bailey. “While this may seem safe, they are putting their goals at risk by keeping cash on hand. While they are young, Millennials have time on their side and could be missing an opportunity to grow their savings over a lifetime.”
Jessa Claeys is a writer, editor and graphic designer.