The Financial Lives of Millennials: Evidence from the U.S. Financial Health Pulse

Thea Garon

The financial challenges of Millennials have been well-documented in the pages of this volume and elsewhere. Coming of age in the shadow of the Great Recession, Millennials entered the job market during one of the worst economic downturns in decades, and now face mounting student loan debt, sky-high housing and healthcare costs, and increasingly precarious work environments.

Yet too often these challenges are considered in isolation from one another. This is a mistake. To truly understand the complex financial lives of Millennials, we need to consider the totality of their financial lives and how their ability to spend, save, borrow, and plan is facilitating—or hindering—their ability to be resilient and thrive over the long run. Only by considering the financial lives of Millennials through a holistic lens can financial service providers, policymakers, regulators, and other industry stakeholders develop solutions that help today’s young people lead financially stable lives now and in the future.

Measuring Financial Health

At the Financial Health Network, we suggest looking at the lives of Millennials through the lens of “financial health,” a composite metric that pulls together the multiple strands of an individual’s financial life. A financially healthy life comes about when one’s daily financial systems function well and set them up to be resilient and pursue opportunities over time. Unlike narrow metrics like credit scores, financial health considers the totality of an individual’s financial health across four areas: spending, saving, borrowing, and planning.

Financial health can be measured by collecting survey data that align with eight indicators of financial health. For every individual who responds to all eight survey questions, one aggregate financial health score and four sub-scores can be calculated.

Financial health scores:

• 80 – 100 are considered Financially Healthy; people with scores in this range are spending, saving, borrowing, and planning in a way that will allow them to be resilient and pursue opportunities over time.
• 40 – 79 are considered Financially Coping; people with scores in this range are struggling with some, but not necessarily all, aspects of their financial lives.
• 0 – 39 are considered Financially Vulnerable; people with scores in this range are struggling with all, or nearly all, aspects of their financial lives.¹

Exploring the financial lives of Millennials through a financial health framework offers new insight into the needs and challenges of this unique demographic. According to data from the 2019 U.S. Financial Health Pulse consumer survey, only 24 percent of Millennials are Financially Healthy.² These individuals are spending, saving, borrowing, and planning in a way that will allow them to be resilient in the face of unexpected events and pursue opportunities over time. Just over half of Millennials (54 percent, approximately 43.4 million people) are Financially Coping; these individuals are struggling with some, but not necessarily all, aspects of their financial lives. A sizeable portion of Millennials (22 percent, approximately 17.8 million people) are Financially Vulnerable; these individuals are struggling with most, if not all, aspects of their financial lives.

Disaggregating the Data

Of course, Millennials are not a monolithic group. As with other socioeconomic outcomes, financial health diverges sharply along racial and ethnic lines. White Millennials are more likely to be financially healthy than Black and Hispanic Millennials (27 percent, compared with 16 percent and 19 percent, respectively). These patterns hold true across many of the eight indicators of financial health. For example, 47 percent of Hispanic Millennials and 48 percent of Black Millennials report paying all of their bills on time, compared with 62 percent of White Millennials. Black and Hispanic Millennials are also far less likely to report having strong credit scores: 33 percent of Hispanic Millennials and 26 percent of Black Millennials say they have “very good” or “excellent” credit scores, compared with 46 percent of White Millennials.

These disparate financial health outcomes are the result of decades of discriminatory policies that have made it far harder for non-White Americans to build and transfer wealth to future generations. The enduring legacy of these policies can be observed in our data in terms of self-reported rates of generational mobility. While comparable numbers of White, Black, and Hispanic Americans say their families struggled financially while they were growing up, Black and Hispanic respondents are far less likely than their White counterparts to be financially healthy today. Among all respondents who say they struggled financially growing up, only 18 percent of Black respondents and 14 percent of Hispanic respondents are financially healthy today, compared with 29 percent of White respondents.³ These disparate outcomes suggest that the legacy of historic policies have had a lasting effect on opportunities for generational mobility among Black and Hispanic Americans.

Workplace Instability and Employee Benefits

Beyond demographics, Millennials’ financial health is shaped by the nature of their employment, and the corresponding impact this has on their income. Millennials who say their schedules are consistent, or that their hours vary at their request, are 2.2 times more likely to be financially healthy than those who say they their schedules vary based on their employers’ needs. Likewise, Millennials who say their income is roughly the same amount each month are 2.3 times more likely to be financially healthy than those who say their income varies month to month. These associations hold true even after controlling for socioeconomic and demographic factors, such as age and income.⁴

Access to workplace benefits also plays an important role in shaping one’s financial health: Millennials whose employers offer health insurance and paid sick leave are 2.3 times and 1.9 times, respectively, more likely to be financially healthy than their counterparts who do not have access to these workplace benefits.⁵ Collectively, these findings suggest that there are opportunities to address workplace instability in two key ways: at its source, by making employees’ hours and wages more predictable and less volatile, and by treating the symptoms of instability through employee-provided benefits, such as paid leave and healthcare. Since finances are the greatest source of employee stress, employers can offer products and solutions to help employees budget their money, manage debt, build emergency savings, and plan for the future.⁶

The Role of Financial Service Providers

Financial service providers have an essential role in responsibly meeting the financial needs of Millennials. By leveraging their comfort with technology, providers can design high-quality digital products and services that help today’s young people lead financially healthy lives. A majority of Millennials (65 percent) say they have used online banking in the last 12 months, and even more (72 percent) say they have used mobile banking in the last 12 months.⁷ Millennials also report high levels of engagement with other types of digital tools, such as personal financial management apps that categorize and track spending and automatic transfers to move money from checking accounts to savings accounts. Financial service providers can capitalize on these behaviors by developing affordable, accessible, and customizable products that help their clients manage their finances and achieve their financial goals.

Indeed, our data show that Millennials expect nothing less from financial service providers. A majority of Millennials (57 percent) say that it is “extremely” or “very” important that their primary financial institution help them improve their financial health.⁸ More than one in five rank “how much a financial institution cares about [my] financial wellbeing” as one of the top three reasons for why they would choose to do business with a financial institution.

And yet, just 14 percent of Millennials “agree strongly” with the statement: “[My primary financial institution] helps me improve my financial health.” This is a missed opportunity. Millennials who say their primary financial institution is helping them improve their financial health are far more likely to be satisfied with that company, to recommend the company to family or friends, and to say that they will obtain financial products and services from that company in the future. These trends hold true across financial health tiers and demographics. Investing in the financial health of customers is not just the right thing to do, it’s also the profitable thing to do, especially as more Millennials are turning to mobile-first “neo-banks” that promise great consumer centricity and social impact.

Policy and Regulatory Opportunities

Policymakers and regulators have essential tasks to assume in improving the financial health of Millennials. For starters, these entities can invest in clear and consistently applied consumer protections that support consumers’ financial wellbeing. Policy innovations that balance the need for short-term savings and debt management with long-term savings can help individuals build financial resilience. Modernizing the Community Reinvestment Act can provide opportunities to reward banks for their focus on consumer outcomes, especially those related to financial health. Lawmakers can join forces with industry stakeholders to ensure that consumers can safely and conveniently access their financial data, and securely share that data with financial institutions and tech companies. These regulatory actions should be accompanied by sustained efforts to recognize the lingering effects of structural racism on households of color and design policies that allow all Americans to build and transfer wealth to future generations.

For our part, the Financial Health Network is committed to providing data, insights, and tools that financial service providers, regulators, and policymakers can use to diagnose, understand, and track the financial lives of Millennials. Armed with longitudinal data from the U.S. Financial Health Pulse, we plan to release ongoing data and insights about the financial health of Americans and how it is changing. While the challenges before us loom large, we are confident that we can collectively help today’s young people lead financially healthy lives, now, and in the years to come.