The Smart Way Millennials Afford To Live

Escalating housing costs push younger generations to find alternative living solutions with parents

Ric Edelman: It's Wednesday, March 20th. On today's show, how millennials are handling their money. What do you do if you're in your twenties, and you'd love to rent an affordable apartment, or even buy a house? Well, for one out of four young millennials, they're giving up on the idea. Both rentals and purchases are too pricey. 

So instead of living in a place too cheap, or too far, or with too many roommates, they're doing something different. They're living with their mom and dad. Twice as many people from age 25 to 34 live at home than they did in the 1980s. First time home buyers are now on average 36 years old. 25 years ago, the average first time home buyer was 29. 

All this is perfectly understandable considering that the average house in the US now costs $420,000 and interest rates are twice as high as they were a year ago. Bottom line, four times as many people live in multi-generational households as they did in the 1970s. A third of these folks say they're living with elders because of caregiving needs. 

But 40% say it's simply money. They just can't afford to live separately. So they're taking the opportunity to put the savings of the money they otherwise would have spent on rent or home ownership into their investments. And it's not just millennials who are living with parents and saving lots of money. Teenagers are doing this too. You know, I know of course, teenagers are living with mom and dad because they're teenagers, of course they are – but teens are also investing. There are now 300,000 teenager accounts at Charles Schwab. And every brokerage firm – Vanguard, Fidelity, Morgan Stanley, E Trade, you name it – they're all reporting a rise in custodial accounts. You see, these accounts are custodial because kids under 18 can't open a brokerage account, but their parents can on their behalf. It's called a custodial account. And not only that, there are online apps, you get them through your smartphone, that are attracting young investors. 

Teenagers invested $20 million last year using the Greenlight app. All told, new research shows that 25% of the nation's teenagers have started investing. Two thirds of gen Z says they started learning about investing while they were teenagers. But even though the millennials have done a much better job than their boomer parents – well, you know, they began investing at a much younger age than their parents did – they've invested so much more and they've picked much better investments. 

By the time the millennials retire, their investments will be able to generate 60% of their pre-retirement pay. That's awesome, because you get to add social security on top of that. They did a better job, or I should say they're in the middle of doing a better job, because their parents, the boomers, either didn't save, or if they did, they didn't save enough, or if they did, they didn't choose the right investments. 

They chose low risk investments like government bonds and Bank CDs that didn't earn much interest. But millennials know that they need to get higher returns, they don't believe in social security, they don't have an employer pension, so they know it's all up to them. So they're saving a lot, they're saving early, and they're saving in better earning investments. 

If it's gonna be, it's all up to me. That's the mantra of millennials. So they are working hard to save early, a lot, and smartly. And teens, their kids, are following their lead. All this is great news. And it'll be a rising tide that serves not only those who are saving, but the capital markets whose prices will rise thanks to the inflows. And the companies that will have access to the money they need to grow, create jobs, and that'll expand our GDP and provide the tax revenue the government needs to deliver services. This is all a virtuous circle.  

With so many saving, this lens on the future, it's looking pretty good. Keep doing what you're doing. And if your kids and grandkids aren't yet engaging, get them started by helping them open a custodial account. If you're an advisor and you've got clients who haven't opened custodial accounts for their kids and grandkids, you now have something to talk about in your next review meeting.  

On tomorrow's show, guess who's turning 100 this year? Without this milestone, your financial future wouldn't be as secure as it is. 

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