Australia’s millennials may soon experience their first recession, due to the COVID-19 pandemic. While the financial toll of the pandemic will be borne by all generations, millennials are perhaps the least prepared…
Also referred to as Generation Y, millennials are the much-maligned “smashed-avo-eating” cohort of people born between 1981 and 1996.
They have never lived through an economic downturn in the workplace. The worst financial event they’ve seen was the Global Financial Crisis (GFC), and even that was still a time of steady economic growth in Australia.
These young adults may be at less risk of serious illness from the coronavirus than older generations, but they are particularly vulnerable to the financial turmoil following in its wake.
Compared to their predecessors, Gen X (born 1963 to 1980) and the Baby Boomers (1946-1964), at the same point in their lives, people in their 20s and 30s today have relatively low levels of homeownership and savings.
Going into the GFC of 2008, Gen X was roughly the same age as millennials are today, but had on average twice the total assets that millennials have now.
Baby Boomers and Gen X grew up hearing stories of the Great Depression, and of the years of austerity that followed World War II. This helped to foster a culture that was risk-averse when it came to money: you didn’t lay-buy, you saved. You bought it, you owned it. They were uncomfortable with debt, and driven to “save for a rainy day”.
But decades of unbroken economic growth, as well as changes in technology, have created a different world for millennials, whose lifestyles are built around frequent shopping and dining out. Innovations from tap-and-pay to Afterpay have helped to shape their attitudes to spending and credit.
Yet in 2020, a high proportion of millennials are involved in part-time or casual work and the gig economy, which provide few benefits to cushion the blows of unexpected tough times.
And although highly educated, millennials are relatively financially illiterate. Research by PWC found that when tested on financial concepts, only a quarter demonstrated basic financial knowledge, and less than a third were seeking professional financial advice on saving and investing.
Compared to older people, many millennials have little faith in stock markets, perhaps as a result of having lived through the GFC at an impressionable age. This, and a lack of knowledge about investing, are major factors propelling investment jitters among young adults today.
A recent survey found that less than half of affluent millennials feel confident about retirement planning, and only a little over a third feel knowledgeable about investing.
So, it was no surprise that when share prices plummeted in March 2020 due market disruption caused by the pandemic, many millennials overreacted and liquidated their already depleted holdings.
“That has to do with living through a crisis as an adult — for many of them it’s their first time,” said one market strategist. “Every generation has that sort of moment where it’s like, ‘Wow.’”
Yet fortunately for millennials, they also have several things going for them when it comes to surviving the likely coronavirus recession.
They are at the right age and point in their lives to benefit from the economic upturn that will inevitably follow the pandemic.
They may have amassed only humble savings, but not as many have mortgages. They are highly educated and they’re young enough to take a punt, as well as to prosper from the benefits of compound growth by initiating investment plans.
And today there’s a wealth of free quality information available on how Australians can take control of their financial lives, from government initiatives such as the Financial Capability and Moneysmart websites through to private-sector initiatives including the Davidson Institute.
In years to come, millennials will look back on 2020 as a time that reshaped their attitudes to saving and investing. With hindsight, perhaps they may even see it as having benefited them in that regard.
This article has been prepared by Trilogy Funds Management Limited (Trilogy) ABN 59 080 383 679 AFSL 261425. This advice is general advice only and does not consider your objectives, financial situation or needs. You should consider whether the advice is suitable for you and your personal circumstances and we recommend that you seek personal financial product advice on your objectives, financial situation or needs and obtain and read the relevant product disclosure statement before making any investment decision.