Psychological Biases Hindering Many Millennials’ Financial Progress

Psychological Biases Hindering Many Millennials’ Financial Progress

The Elusive ‘Better Than Average’ Financial Millennial

Popular culture often portrays millennials as frivolous spenders who prioritize avocado toast and Instagram likes over saving and investing for the future. Yet a subset of financially savvy millennials is bucking stereotypes and demonstrating above-average skills in budgeting, debt management and investing.

For many millennials, a combination of financial lessons learned from the Great Recession and technological tools available today set them up to potentially best their predecessors’ money management. Still, behavioral obstacles and systemic challenges persist that prevent most millennials from attaining an elite financial status.

Uncovering what makes some millennials ‘better than average’ financially can offer crucial insights for improving money habits across the generation as a whole.

The Basics of Being a “Better Than Average” Financial Millennial

While a universal definition remains elusive, better than average financial millennials likely share a few common traits:

•Above-average savings rates. Many millennials who ranked their finances highly reported saving 10-30% or more of their income, exceeding the U.S. average of 7.7%. Their propensity to delay major expenditures on houses and families also helps fuel higher savings.

• Low or manageable debt. Better than average millennials have avoided excessive student loans through scholarships, part-time work or budget colleges, or have focused on paying off debts quickly. Many also eschew credit cards and other unnecessary forms of debt.

• Strong financial knowledge. Millennials with above-average money skills frequently cite learning from their parents, taking personal finance courses in school and researching best practices online for honing their financial knowledge.

• Early investing. The earlier millennials begin investing, the more compound growth can benefit their portfolios over time. Better than average millennials typically started investing in their 20s if not earlier.

• Strong desire to improve. Many millennials who self-identified as financially superior also expressed an ongoing desire to learn more and improve their financial habits even further.

While rigid definitions of ‘better than average’ remain elusive, millennials making wise money choices early and continuously demonstrate above-average potential to accumulate wealth and attain financial security.

Challenges to Becoming a Better Than Average Financial Millennial

Despite pockets of examples, most experts agree that the majority of millennials have not achieved ‘better than average’ financial status for reasons including:

•Psychological biases. Overconfidence, present bias and imbalance weigh on millennials as much as other generations. They cause many millennials to overestimate their skills and delay saving and investing.

• Lack of financial education. Although improving, financial literacy remains lacking among many millennials,particularly those from lower-income backgrounds with less access to resources.

• High cost of living. Rising education, housing and healthcare costs strain millennials’ finances and reduce funds available for saving and investing, even for those with above-average income.

• Income and wealth gaps. Systemic disparities based on race, gender, geography and socioeconomic background limit the number of millennials who can achieve above-average financial capability.

• Peer pressure and comparisons. Comparing themselves to peers on social media causes many millennials to consume beyond their means and feel inadequate about their own finances.

•Student loan burden.Millennials hold over $1.5 trillion in student debt, hindering their ability to accumulate wealth at rates exceeding older generations.

While some financially exceptional millennials can overcome these obstacles, they highlight why most millennials struggle to achieve ‘better than average’ financial status compared to older generations. Systemic challenges require solutions beyond the efforts of individual millennials.

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