Here’s To You, Gen Y!
By Leslie E. Linfield
Spring 2009
Every generation has its label. For those born between 1982 and 2000, you are called the Gen Y generation because you followed folks like me who are known as Gen X (born from 1965 to 1981). Some may refer to you as "the Millennials" or the "Net Generation" because of your birth at the end of the century and your keen understanding of technology.
However, the emerging reality of your generation is that you are more likely to be defined by your economic times than by the boundaryless digital society of places such as My Space or Facebook.
Early media perceptions of Gen Y have been largely negative when it comes to money. For example, an article published in 2007 was entitled, "Generation Y's Goal? Wealth and Fame." Another was called, "Why is Generation Y Broke?" When I searched for positive articles on money and Generation Y, I came up empty.
The oldest Gen Y members are currently 27 years old, but let's look at some of the generation's youngest members. The youngest Gen Yers would be a mere nine years old, so how could they already be considered failures in money management?
Sometimes it's all about perception. Most of those articles were written before the current "Great Recession." I believe your generation will be defined by economic experiences more than anything else. Your economic times will shape and define your attitudes and behaviors toward money.
Another generation was defined by great economic uncertainty: the "Depression babies" (also known as the "silent generation"), born from 1925 to 1944. This period in our country's history was marked by high unemployment, bank failures and many homes lost to foreclosure. Sound familiar?
As these children grew up, they witnessed 25 percent unemployment at the peak of the Great Depression. As these families lost their jobs, they were unable to buy food or pay the mortgages on their homes and farms. Banks had no choice but to foreclose to prevent additional bank failures. Some families became nomadic in search of jobs and food. These circumstances obviously affected the way these kids looked at money.
What became of these children as they grew up? They probably are your grandparents or great-grandparents. Most were low consumers � they didn't go to the mall for the fun of it. They were high savers, taking comfort in their fat piggy banks. They were wary of credit. Cash was king with these folks. Why? They remembered growing up with the suffering of parents and neighbors losing their homes and businesses. Sometimes experience is the greatest teacher.
Unfortunately, their kids didn't learn these lessons. The Baby Boomers (born from 1945 to 1964) and my generation, Gen X, didn't grow up witnessing such traumatic events. We're the generations who have saddled ourselves with unmanageable debt loads and recorded steadily dwindling savings rates during the past 20 years.
So that brings me back to you, Gen Y. If history repeats itself, as I suspect it will, then those negative articles proclaiming that you are personal finance slackers will be proved wrong. Publications soon will spotlight you as examples of thrift and prudence. You will be the generation which avails itself to personal financial literacy classes the way previous generations took ballroom dancing and yoga.
You will save 10 percent of your gross savings as a matter of principle. You will invest those savings toward your retirement and financial goals as a way to secure both your family's and country's financial future. You will exercise caution when using consumer credit. You will understand that credit is a tool to advance your family's goals when used properly but can drive you into bankruptcy court when used recklessly.
So, Gen Y, you will not maintain the spendthrift ways of the two generations before you. You will remain open to learning and become more financially literate. You will pass on your knowledge to your children to continue the trend of greater financial literacy and security.
Here's to you, Generation Y! And here's hoping for Generation Z!
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Seven Suggestions For The Gen Y Investor
- Save 10 percent of your gross monthly income.
- After socking away six months' living expenses as an emergency fund, invest the rest.
- Maintain a written budget each month.
- Find a trustworthy advisor for your investing and insurance needs.
- Own a home as soon as you can, using a fixed-rate mortgage and paying at least five percent down � it's still the best way to build long-term wealth.
- If you have a spouse or children, buy life insurance.
- Plan now for your retirement � you're never too young!
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Leslie E. Linfield is executive director and founder of the Institute for Financial Literacy.