Seven Headwinds Threatening to Capsize Millennials’ Finances

(This is the first of a two-part series.)

We hear a lot about millennials and money these days. They’re chronically stressed about finances. They have a negative savings rate. They’re slammed with student debt repayment and aren’t earning enough or aren’t earning at all. They spend more on coffee than retirement.

The news isn’t always bad. For example, they’re investing for retirement (a little too conservatively, but they are investing). Still, popular culture and media have still tagged this generation as both profligate and entitled.

Generationally generalize much? Some of the millennials I know are both hard-working and forward-thinking. Some save not only for their own future but have also established education funds for their kids.

However, this generation does face some unique challenges.

1. Student Loans

On the bright side, a college degree could bring higher lifetime earnings. But record levels of student loan debt don’t help when you’re trying to save for the future or buy a home.

To get control of your debt, consider tactics like income-driven or income-based repayment plans, or refinancing the loans. Such options have pros and cons, so think it over carefully.

2. Pressure to Save for Retirement

Thanks to the magic of compound interest, the best time to start saving for retirement is in your 20s – which happens to be right when a lot of young workers are paying off student loans and also at the low end of the earnings spectrum.

But that’s also when you’re full of promise and of excitement about beginning your adult life. When better to travel, to party, to dream?

A balance between “live for today” and “build for tomorrow” is possible. It might not be easy, but it’s generally do-able. Some helpful tactics: taking full advantage of any 401(k) employer match, living with roommates or living at home for a few years, getting a side hustle, learning to cook, using “style challenges” to create a basic wardrobe rather than constantly buying more clothes, and paying yourself first (that is, paying Future You first by automating even a small amount of each paycheck to retirement).

Future You will judge Current You pretty severely. If one thing is certain, it’s that you probably won’t be able to make it on Social Security alone.

3. Dependence on Debit Cards

Millennials use debit cards for 28 percent of their purchases, according to a recent study from Visa. Choosing debit could actually be a good thing if you:

Want to stick to a budget (can’t spend what you don’t have in checking)
Already have debt (using the debit card keeps you from boosting that balance)
Have been known to miss payments or pay bills late (payment history represents 35 percent of your credit score)

However, paying with credit is usually a better choice. Chief among the reasons: It’s somebody else’s money. Your debit card is linked to your cash, and if the card is compromised then the fraudulent transactions siphon dollars from your checking account.

You’ll get the money back eventually, but that could take a long time – and if you’re living close to the bone, how will you manage until then?

By contrast, if someone steals your credit card you’ll be on the hook for only $50 worth, as long as you report it promptly. In fact, your card issuer might absorb that cost; my cards have been hacked more than once, and never have I been asked to pay that $50.

In addition, you can dispute an unauthorized charge on a credit card, and maybe get the money back for items that get damaged or lost during shipping. Some credit cards have other protections, too, such as basic rental car insurance and extended warranties.

Another huge issue is that debit cards do not help you build a good credit score – and that three-digit number has a big impact on how much interest you’ll pay on loans during your lifetime. (To say nothing of the fact that future landlords and/or employers might take a look at your score, too.)

Does this penalize hard-working folks who believe in paying cash? Pretty much. But that’s the way things work. A savvy consumer will learn to work within this system, even if it stinks.

(To see some of the best options, visit The Simple Dollar’s credit cards page.)

4. Delayed Marriage and Parenthood

Two incomes are better than one. If one spouse gets sick or laid off, there’s still some money coming in. When it’s time to think about homebuying, two people can qualify for a bigger mortgage.

One spouse might also have a superior health insurance plan, which comes in handy when it’s time to have or adopt a child. And those two incomes could also mean two sets of paid parental leave, which cuts the cost of child care.

The longer you stay single, the fewer of these advantages you’ll have.

Related: 13 Ways to Beat the Single-Person Penalty

5. Not Earning Enough

The poverty rate among young adult heads of household has steadily increased in the past 50 years. Millennials are no exception: Of the approximately 17 million impoverished U.S. households, an estimated 5.3 million were headed by millennials. Two likely reasons: millennials are more racially and ethnically diverse (and minorities tend toward higher poverty rates), and they’re also more likely to be unmarried.

6. Eating Habits

Millennials spend more of their food dollars at restaurants than in supermarkets, according to the U.S. Department of Agriculture. When they do shop, they tend to go for organic and/or exotic ingredients.

Organic food is almost always going to cost more. That doesn’t mean you shouldn’t buy it. What it does mean is that the extra money will have to come from somewhere else. Four possible workarounds:

Cook more from scratch. For example, a bag of organic dry beans (simple to prepare in a slow cooker or Instant Pot) will yield a lot more bang for the buck than canned ones. The money you save will help defray the cost of organic produce and meat.
Try batch cooking. If you spend part of one weekend per month making and freezing meals, you’ll be less likely to order (organic) takeout or to buy pricey organic frozen dinners because you’re too tired to cook.
Eat with less drama. Making elaborate organic dinners with multiple courses is going to cost a lot more than simpler (but still delicious) menus.
Cut something else from your budget. If eating organic is important to you, trim costs elsewhere to be able to afford the more expensive ingredients. (Find some good tips here.)

7. FOMO

That’s “fear of missing out,” and it’s ever-present in this ever-connected world in which we live. Celebs are Instagramming their newest bling. Friends put up Facebook videos of their vacations on white-sand beaches or their brand-new McMansions. Your BFF just texted a photo of his new iPhone X, while you’re stuck using a phone from four iterations ago.

The most insidious thing about FOMO? It keeps you from appreciating the good things you already have. Paid-off vehicle that gets good mileage and is easy to drive? (Yeah, but my brother-in-law has an awesome sports car!) Got a job that absorbs and delights you and also provides the flexibility to deal with family issues? (Well, that’s true, but my BFF makes $10,000 a year more – why can’t I earn like that?)

Work to defeat FOMO every time you feel it creep in. There’s nothing wrong with wanting to live your best life, but there’s plenty wrong with going deeply into debt to do so – especially since there’s no guarantee that what you get will keep you happy for the long term.

Tomorrow, the second part of this series will run – an article with nine secret weapons that millennials can use to take control of their cash.

Award-winning journalist and veteran personal finance writer Donna Freedman is the author of “Your Playbook for Tough Times: Living Large on Small Change, for the Short Term or the Long Haul” and “Your Playbook for Tough Times, Vol. 2: Needs AND Wants Edition.”