Earlier this year, it was estimated by tax and consulting firm Pricewaterhouse Coopers and the George Washington University’s Global Financial Literacy Excellence Center that 42 percent of United States millennials took out a payday loan as well as other alternative financial products.
Millennials – those born between 1980 and 2000 – are cash-strapped, wary of the stock market, faced with ballooning student loans and can’t find well-paying employment opportunities. These are the reasons why millennial consumers are turning to the likes of short-term, high-interest loans to get by.
For financial neophytes or money experts, this is a recipe for a long-term disaster.
Despite this, a new report suggests that millennials are overconfident about their finances.
The Wall Street Journal reported that their overconfidence can seriously harm them when an economic downturn transpires. With 73 percent of millennial participants conceding that they paid their bills late, took out payday loans and maxed out their credit cards, they feel confident in their personal financial situation, even though a recession could negatively impact them like past generations.
Some may view this as a positive, but millennials are not preparing to weather a storm. A growing number of millennials have overdrawn on their checking account, 20 percent have taken a loan against their savings and many millennials are still utilizing payday loans.
Of course, there are still some millennials who are taking their finances seriously. Sixty percent have a retirement account, one-quarter have investments in stocks or mutual funds and nearly half own a home. Whether or not they’re over leveraged or deeply indebted is something we all worry about.
But why exactly are millennials overconfident? It seems because their parents are bailing them out. The newspaper found that nearly two-thirds (59 percent) of parents are financially supporting their adult children – this is concerning, too, since one-quarter of parents took on additional debt.
Here is what the WSJ notes:
“As a society we have to understand that the challenges are more than just debt. We must help millennials understand that financial capability is a balance of managing assets and liabilities, and planning for challenging circumstances. Ultimately, we have to empower them to do it on their own.”
This past spring, the Globe and Mail profiled an avid millennial payday loan user, who recently broke out of the never ending debt cycle. The Vancouver woman admitted that it was “a struggle,” but through dedication, planning, some hard work and a dramatic change in her spending habits she was able break through the chains of payday loans and debt.
What was interesting inside that G&M piece? Despite constantly using payday loans, the millennial was confident in her financial abilities. A financial expert cited in the piece averred that many millennials are concentrating on today as opposed to tomorrow. This is perhaps the cause of their overconfidence. If you see $250 in your hand today then you think you’re doing very well at the present.
All kinds of people from all demographics are taking out payday loans. But a lot of them don’t behave with a great degree of pecuniary confidence. Is it time for millennials to take a step down from that pedestal and be given the reality of their monetary situation? Not right now because they have to take out a payday loan to help pay their student loan, new iPhone and trip to Starbucks.