And why their parents are partly to blame.
Ric Edelman: It's Monday, March 20th. It's the first day of spring. Awesome. Hey, everybody wants to have a secure financial future, but millions of Americans are setting themselves up for financial failure instead. That's because of their poor judgment, their immature behavior and their bad decisions. And I might well be talking about your adult children. People in their 30s are piling up massive amounts of debt. A lot of it is because they just feel like it. Debt among millennials is now $4 trillion, according to the Federal Reserve. That's 27% higher than four years ago. The stimulus checks from Covid, they all stopped in 2021. So has working from home. Families are back to commuting and traveling and eating out again.
And in the middle of all this, interest rates have skyrocketed on credit cards and loans, all higher due to the economic environment. Everything from childcare to housing costs are up and okay, yeah, a lot of that's beyond our control. But trips to Disney World, sorry, that's on you. The average credit card balance for millennials is now almost $7,000. That's up 26% in just one year. Millennials have the highest delinquency rate for car payments more than any other age group, largely because they bought cars they simply can't afford.
How did millennials get themselves into this mess? First, they grew up in the participation trophy era. No need to work hard, just show up and you automatically win a prize. If your teacher complains to your parents, the parents yell at the teacher, not you. So when a college student asks you for a credit card, they get one whether they can pay it off or not.
Millennials treat credit cards like they're free money. They use them to pay for restaurants, clothes and vacations. They get the statement. They just pay the minimum. When the card maxes out, they ask the credit card company to increase the limit, which the credit card company is happy to do, or they just go get another credit card. And when the millennials have kids, they just keep on spending like they did before they had kids, on top of all the money they're spending on the kids.
Lending Tree says millennials are paying average credit card interest rates of 24%. And even when millennials can afford to pay more than the minimum, they don't. All they pay is the minimum, that according to the National Bureau of Economic Research. There's no logic to any of this, but that's because they're not applying logic, partly because they don't know how to. Nobody ever taught the millennials anything about money or interest rates or wealth creation. And nobody teaching them this - that means you, their parents. All you did was give them whatever they wanted, those participation trophies. And now that's what they expect. They live in the now with no cognition of the implications of their future.
After all, the greatest phrases millennials use are FOMO and YOLO. If you don't know what FOMO and YOLO are, go Google them. All that leads to overspending. It doesn't help that all their friends are living the same way. As a cohort, millennials are all going broke together. Well, misery loves company, I guess.
What it all means is that in the future, they're going to demand more and more from everybody - from you, their parents, from their employers, and from their government. Already, millennials are demanding that they not have to repay their student loans. Hey, it's not my fault I have $50,000 in student loan debt, they say. You told me to get the loans. You gave me the loans, and now I don't want to pay back the loans. Boo Hoo. And President Joe Biden is trying hard to give in to them, just like all the millennial parents are doing. Whatever you want, sweetheart, you can have.
Even financial advisors are helping millennials hurt themselves. Go look at your IRA account. Even assuming a millennial has one, a lot of advisors are quick to tell their clients that, Hey, you don't have to contribute to your 2023 IRA yet you have until April of 2024. So go ahead. Wait. Delay. Don't invest yet. This lets you off the hook when it comes to saving, but it's hugely bad advice.
Here’s why: If you contribute to your IRA on January 1st of each year instead of the following year's April, you'll amass hundreds of thousands of dollars more in retirement without actually saving any additional money because you're letting the money you are save grow for a longer period, an extra 15 months for every year's contributions. Hundreds of thousands of dollars just by telling millennials to save now instead of later or never at all. If we don't start getting our younger generations to spend less and save more, starting right now, if we don't get them to start acting like the adults they are, they're going to enter their elder years impoverished and dependent on the government. And since government is code for taxpayers, that means all the rest of us are going to be the ones paying for their lifestyles. It's easy to have a bright financial future. You just have to act like a mature, responsible adult, not a selfish little brat who tosses a fit when they're not given a trophy for just showing up. That's my rant for the day. Happy spring.
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About a week ago on one of my podcasts, I offered you my solution to the Social Security crisis. I asked you the question, is my solution brilliant or wacky? I asked you to send me your comments and I got an awful lot of them. Thank you very much for submitting your comments. If you haven't yet commented on my brilliant or wacky solution to the Social Security crisis, listen to that podcast. The link is in today's show notes and tell me what you think about my idea. How you can contact me is also in the show notes. I'm compiling all of the comments that I'm getting, and in a week or two, I'm going to tell you what everybody has to say about the Social Security crisis and my proposed solution to it. So participate in the conversation.