TIAA Institute and GFLEC Release Report on Millennials’ Financial Challenges Amid COVID-19
Millennials were facing a challenging financial situation before the current economic crisis triggered by the COVID-19 pandemic, including difficulties with student loan debt and expensive money management practices, according to a new report.
As the researchers note, before the current economic crisis, a majority of millennials struggled with — and felt stressed about — their personal finances. Data from the National Financial Capability Study (NFCS) shows that 63 percent felt anxious when thinking about their financial situation. More than half of millennials (53 percent) had not set aside an emergency fund that could cover their expenses for three months.
These statistics from 2018, a time of economic expansion, indicate how ill-prepared millennials were to face an emergency, let alone an economic contraction as significant as the one caused by the COVID-19 pandemic.
One factor contributing to millennials’ lack of savings or access to credit, which adds to this population’s inability to weather economic shocks, could be their debt holdings. In 2018, 44 percent of millennials reported feeling as if they had too much debt, with 51 percent reporting concern over their ability to pay back their student loan(s) in full.
Additionally, researchers found that millennials’ money management practices contribute to their financial fragility. A higher proportion of millennials engage in expensive short- and long-term money management behavior compared to older working-age adults (age 38-64 in 2018). Only 16 percent of millennials could be considered financially literate.
“In addition to a lack of assets and too much debt, expensive money management practices also contribute to millennials’ precarious financial state,” said Annamaria Lusardi, academic director of GFLEC and University Professor of Economics and Accountancy at the GW School of Business. “A staggering 43 percent of millennials used some form of alternative financial services such as payday loans and pawn shops in 2018. Millennials’ extensive use of high-cost borrowing methods, combined with their low level of financial literacy, can put their financial resilience at risk.”