Take On Payments, a blog sponsored by the Retail Payments Risk Forum of the Federal Reserve Bank of Atlanta, is intended to foster dialogue on emerging risks in retail payment systems and enhance collaborative efforts to improve risk detection and mitigation. We encourage your active participation in Take on Payments and look forward to collaborating with you.
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Why Are Millennials So Risk-Averse?
Although millennials have been known to be the most charitable age group compared to earlier generations, they are, ironically, holding their money very close when it comes to taking financial risks. According to a recent study from the Federal Reserve, millennials are less well off than previous generations of young adults. They tend to have higher levels of student debt, lower incomes, and fewer assets to their name. In addition, millennials have grown up watching various financial crises in the United States and around the world, including the bursting of the housing bubble, the dot-com collapse, and the Great Recession. The last crisis was unfortunately around the time this generation began entering the workforce. Dealing with these financial obstacles has negatively impacted their attitude towards financial risk-taking, including investing and even opening up a new credit card. A 2017 survey, for example, found that millennials are more afraid of credit card debt than of dying or war.
Source: credible.com, "Survey: Millennials Fear Credit Card Debt More Than Threat of War and Dying"
Millennials’ tend to see credit cards—mistakenly—only as one more way to take on additional debt. But are they doing themselves a disservice by not taking advantage of an opportunity to quickly build up or improve their credit? Doing so could better enable them to qualify for a loan to purchase a home or start a new business. Furthermore, using credit cards wisely could actually help millennials save money in the long run through rewards and cash-back programs. And when it comes to investments, millennials are opting out of long-term investments like mutual funds, preferring instead to spend their money on immediate experiences, such as traveling and going to concerts, where they can see the "return on their investment" instantly.
The misconceptions and overall distrust in the financial system from this generation speak to a need for more millennial-focused financial education tools and advisers, especially those who understand the struggles of this generation as they navigate through mounds of student debt. Tools and advice that are more dedicated to millennials’ specific needs—whether it’s through a millennial-focused financial management gaming app or a generation Y robo adviser—would go a long way toward helping millennials increase their financial literacy and begin to trust the financial system. The Federal Reserve has many financial education tools. For example, the Atlanta Fed offers financial tips, updated monthly, in the Atlanta Fed’s digital magazine Economy Matters. And check out these resources from the St. Louis Fed:
- Credit Bureaus: The Record Keepers (Page One Economics)
- Online Course for Consumers (Credit Cred)
- Credit Card Statement (Personal Finance 101 Financial Forms Explained
- Credit Report (Personal Finance 101 Financial Forms Explained)
- Build Credit and Control Debt (Building Wealth: A Beginner’s Guide to Securing Your Financial Future)
With some financial education, this generation might gain greater confidence and take more risks with their money so they could build more wealth.
By Catherine Thaliath, project management expert in the Retail Payments Risk Forum at the Atlanta Fed
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