in: Career & Wealth, Featured, Wealth

• Last updated: September 24, 2021

How Millennials Can Overcome Their 6 Biggest Financial Challenges

Forging Metal Vintage blacksmith poster illustration.

Last month we made the case for why Millennials could become the next Greatest Generation of personal finance. According to the Strauss-Howe generational cycle theory, members of Generation Y parallel and share traits with the young people who came of age during the Great Depression. While the economic woes of today haven’t been as severe as those faced eighty years ago, they’re still formidable, and having to endure these challenges seems to be spurring Millennials to adopt the kind of prudent and thrifty habits their grandparents once evinced. Such habits will surely help them weather the economic difficulties of our time, and prepare them to handle an age of prosperity if/when it returns in full force.

While these nascent trends are encouraging, however, they still need to be furthered and strengthened. The worst of the 2008 recession may be over, but the future remains uncertain, the economy continues to be soft, and many Millennials are still struggling financially, both in terms of raw income, and in simply knowing how to protect, manage, and grow their finances. They’re struggling just to keep their head above water.

The economic “Big One” we’re facing down can either be an excuse for hopelessness, apathy, and retreat, or an opportunity to rise to the occasion, to find a better path, to zig when the world zags — to make the obstacle the way.

For those who’d like to take the latter course, today we will revisit the financial issues facing Millennials, this time offering practical advice and strategies on how these challenges can be surmounted. By making these countermoves around the obstacles in the economic landscape, Millennials can become more financially savvy, scrappy, and nimble — just like their grandparents before them.

Challenge #1: Millennials are financially illiterate.

According to a PwC survey, only 24% of Gen Yers demonstrate basic financial literacy in regards to stuff like how mortgages and the stock market work.

In a survey of Millennials already saving for retirement, a third said they were “not sure” how much of their money was invested in stocks vs. mutual funds.

Even Gen Y business owners are often not so confident about their financial acumen; almost half rate themselves as just “somewhat” knowledgeable about and successful in managing their business’s finances.

Not knowing the nuts and bolts of money matters can hurt Millennials’ personal financial prospects in the long run, as well as their entrepreneurial dreams. You can’t fight a problem you don’t understand.

Countermove A: Get an autodidactic education in personal finance.

Research shows that Millennials see personal finance as an important subject to learn: 79% think it “should be taught by high schools, 73% say it should be taught by colleges and 70% feel it should be taught by parents.”

Unfortunately, most young adults probably didn’t get that desired education from any of those sources.

But it’s never too late to learn, and with all the free information online, it’s never been easier to give yourself a complete self-education in personal finance.

Below are a few of my favorite personal finance sites. They run the gamut from blogs on frugality to ones that get into the nitty-gritty of investing.

In addition to those websites, here are the best personal finance books that I recommend picking up:

Countermove B: Call for back-up.

The same PwC survey cited above found that only 12% of Millennials have sought professional help with debt management and just 27% have sought professional advice on savings and retirement. You don’t need to fight your financial battle alone. If you find yourself in over your head with your debt, consider seeking credit counseling. The non-profit National Foundation for Credit Counseling (NFCC) can put you in touch with an accredited credit counselor.

If you’ve got a handle on your debt, but need some help navigating savings and retirement, find a fee-only personal finance advisor. A fee-only advisor charges the client directly for their services instead of relying on the commissions that come from selling customers certain investment funds or insurance policies. For information on how to find a fee-only personal finance advisor, check out the National Assoc. of Personal Financial Advisors.

Challenge #2: Millennials are financially fragile.

According to a Washington Post survey, 63% of Millennials would have difficulty covering an unexpected $500 expense. In the survey conducted by PwC, nearly 30% of Millennial respondents reported that they were regularly overdrawing their checking accounts. Because of this, more young adults are turning to payday loans to get by, a recourse that can end up putting them deeper into the hole.

When you’re unprepared for an unexpected expense, you’re financially fragile.

You want to become financially antifragile instead.

Countermove: Save at least $1,000 in an emergency fund.

The first step to becoming financially antifragile is creating a $1,000 emergency fund. 

If you’re strapped for cash, this can seem like an impossible goal, but with a bit of determination, you can achieve it in a surprisingly short time.

Back when Kate and I were first married, we were both in college, working minimum wage jobs, and up to our eyeballs in student debt. The idea of having $1,000 in savings seemed impossible. But after cutting back on a few expenses and selling a bunch of crap on Amazon and eBay, I was able to sock away $1,000 in a savings account in less than a month. Instead of relying on credit cards to pay for unexpected car repairs which arose not long after, we were able to use our emergency fund.

Once you’ve got your $1,000 stockpiled, and have paid off any high-interest credit card debt (which most Millennials don’t have in the first place) and your student loans, you can set the goal of creating a fund to cover 3-6 months of necessary living expenses. It will feel awesome to get that antifragility-producing safety cushion in place.

For more information, read our article on how to start an emergency fund.

Challenge #3: Millennials are burdened with student loan debt.

With the cost of college tuition having soared the last two decades, Millennials are entering adulthood with more student loan debt than any generation before them — an average of $35,000 worth. That number can increase several times over if they went to a private school or pursued a post-graduate degree.

Student loan debt doesn’t just sap Millennials’ bank accounts, but also hinders them seizing opportunities and moving forward with their life. Over and over again, they report that their debt is the thing that’s keeping them from pursuing goals like getting married, buying a home, or starting a business.

Countermove A: Aggressively prioritize and pay down student debt.

Removing the stumbling block of your student loans will make you far more financially nimble, so make their elimination a top financial priority that you aggressively pursue.

If you have any private variable loans, pay those off first. Sure, the interest rate on them might be lower than federally-backed student loans, but if the Fed decides to hike interest rates in the future, the rate on those variable loans could climb 5-6%, says Mark Kantrowitz, publisher of That could make your payments on those loans unmanageable. Better to pay them off now.

For your federally-backed student loans, you have eight repayment plans to choose from. Most young people make the mistake of picking the plan that has the smallest monthly payment. Doing so causes you to pay more on interest over the loan’s lifespan. Rather, pay as much as you can on your student loans. Find ways you can save and earn more money (see below) and put it all towards your student loans. The short-term sacrifice will reap long-term benefits.

For more tips on paying back your student loans, check out our guide.

Countermove B: Skip college.

Despite its steep price, a college education does still significantly improve one’s earning potential over a lifetime. But it’s definitely not for everyone. If you’re one of the youngest Millennials still in high school, you owe it to yourself to consider the many alternatives to getting a 4-year-degree, including pursuing a career in the trades.

If you do decide to go to college, and have to take out loans to do so, at least don’t be part of the majority of your peers who won’t bother to calculate what their loan repayments will be after graduation. And take out the smallest amount of loans you can, learning from the regrets of almost half of grads who now realize they could have borrowed an average of $11,597 less and still paid for their education. 

Challenge #4: Millennials’ wages are stagnant. 

Research shows that Millennials are earning 20% less than Baby Boomers did at the same age. Further, the outlook in the near future isn’t great; not only do individuals who graduate into a recession earn less money at their first job than those who enter the workforce during a boom time, they earn 2.5-9% less every year for up to two decades. 

Countermove A: Proactively Negotiate a Raise and/or Look for Better Jobs

Part of the reason individuals who enter the workforce during an economic downturn earn less for so long is that the experience of coming of age during a recession tends to make them risk averse. When such individuals do get a job, they’re more anxious about holding on to it and maintaining the income they have coming in — no matter how meager it is. This makes them less likely to look around for higher-paying opportunities, or to risk rocking the boat by asking their boss for a raise — even after the economy has recovered.

Fortunately, circumstances aren’t destiny and this scarcity mindset, as well as its income-depressing effects, can be overcome by actively choosing to have an aggressive attitude towards finding the best possible position and getting paid what you’re worth. Researchers suggest that the wage penalty for starting work in a recession can be eliminated by negotiating for a raise once things pick up economically or by switching jobs.

So if you want to get ahead financially, you need to start playing to win, instead of playing not to lose. Start boning up on how to ask for and negotiate a pay raise. A single raise can boost your salary by thousands of dollars. Properly invested, that single pay raise can result in hundreds of thousands of dollars saved during your working life. Yet so few people ask for raises! And the main reason is fear.

The best guide that I’ve come across on overcoming that anxiety and getting paid what you’re worth comes from Ramit Sethi of I Will Teach You to Be Rich. In his Ultimate Guide For Asking For a Raise, he lays out the groundwork you need to do before you ask for one and provides specific scripts you should follow when making your case. Also, check out my podcast with Frances Cole Jones for more great tips on getting a raise.

If you can’t nail down a pay raise, then you need to start actively looking for a new job. Don’t be afraid to leave the job you’re comfortable with for something that will pay more and/or be a better fit for your career desires and goals. Again, Ramit has a great (and free!) 3-week email course on finding and landing a well-paying job. Another book that provides solid information on getting a job that pays you what you’re worth is Chris Guillebeau’s Born for This.

Countermove B: Be thrifty like Grandpa.

There are basically two ways to increase your income: boost your paycheck, or cut your expenses.

While you don’t have 100% control over how much you get paid, you are completely in charge of how much of that money you save.

Millennials have already become less interested in traditional status symbols like cars or wearing name brands, and thriftier in their purchasing decisions. Embrace this emerging trend towards old school frugality by fully adopting the motto of your Greatest Generation grandparents: “Use it up, wear it out, make it do, or do without!”

Thrift is just another way of becoming financially antifragile; it’s putting via negativa into practice: adding through subtracting. When you spend less money, you not only skip the upfront cost, but also eliminate downsides (like interest payments, maintenance costs, etc.), while increasing upside (paying down debt, increasing personal capital for starting a business, buying a home, or funding retirement savings).

For 80+ ideas on how to add by subtracting and be more frugal, check out this article. Get creative, and I’m sure you can find 800 more.

Challenge #5: Rising rents eat up a burdensome amount of Millennials’ income.

Because of increasing demand, rents have been going up all over the country, especially on the coasts and in desirable cities like Denver and Nashville. At the same time, incomes have been stagnant, so that rent is eating up a greater and greater proportion of people’s paychecks. Economists consider a household “cost-burdened” when their rent makes up 30% or more of their income. By that measure, the number of renters ages 25-34 who are “cost-burdened” went up 6% between 2003-2013.

With rent payments gobbling up substantial slices of their paychecks, Millennials have less money to put towards things like retirement, an emergency fund, student loans, and a future mortgage payment.

Countermove A: Live with your parents (without shame).

One of the most effective ways to add by subtracting is to eliminate your rent cost by moving in with mom and dad. Despite the fact that more young adults are currently doing this than at any time in almost eighty years, the arrangement still comes in for a surprising amount of shame and finger-wagging about Millennials’ “failure to launch.”

Pay no attention to this peanut gallery which largely consists of older folks who came of age in a time when rents were low, and a college education costed, well, peanuts. To the naysayers, point out that the number of young people living at home was even higher in the 1940s — you know, when those “lazy,” “entitled” Greatest Generation folks were sponging off Ma and Pa.

There’s no shame in living with mom and dad as an adult, so long as it’s a short-term arrangement to increase your financial autonomy for the long-term. So quit it with the self-flagellation, accept the economic necessity of the situation, and make the most of it.

Instead of using the money you save from living with your parents to fund a comfortable lifestyle that includes partying, streaming video games, and traveling, use that money to set yourself up financially. Funnel your savings towards paying down your student loans and sock away enough to get your own place. To ensure that living with your folks is a short-term plan, establish financial goals that you want to accomplish while living under their roof and set a target date to complete them by. The goal is to trade less autonomy in the short-term for more autonomy in the long-term.

Countermove B: Move to a cheaper part of the country.

The median rent for a one-bedroom apartment in San Francisco is $3,600. In Wichita, Kansas, it’s $470.

Of course, the Bay Area has got a lot more going for it than Wichita (though some ardent Wichita-ians may disagree). But you have to ask yourself if what they’ve got going is worth a $37,000 per year reduction in income.

For some folks, the answer will be yes. For others, even if they would say no, they still have to live in an expensive city like SF because that’s where their desired job is.

But for others with a career that has more geographic flexibility, and who believe in the notion that you can learn to love any place you live, moving somewhere with a lower cost of living can result in an enormous boost in income. Should you have kids, and should that place be your old hometown, the move could also come with the sizeable benefits that accrue from having your folks (i.e., your kids’ grandparents) nearby.

Challenge #6: Fewer and fewer millennials are becoming full-time entrepreneurs.    

A cultural myth exists that Millennials, burned by a tough job market during the recession, decided to spurn paid employment in favor of becoming entrepreneurial masters of their fate. To judge by the popular narrative in the media, members of Gen Y have created businesses in droves and become the kings of start-ups.

There’s just one problem with this narrative: it’s completely wrong.

The number of young entrepreneurs has actually declined over the last two decades.

According to a recent study, “The percentage share of new entrepreneurs comprised by people aged between 20 and 34 years old has fallen from 34.8% in 1996 to 22.7% in 2013.” As the study’s authors observe: “Young adults, who used to be the largest age group involved in new companies in 1996, are now among the smallest demographic group.”

Entrepreneurship has declined amongst Millennials partly because the heavy burden of their student loan debt has made it difficult to fund and finance their business ideas. The fact that, as aforementioned, coming of age during a recession has left them risk averse likely plays a role as well.

Countermove: Become an entrepreneur on the side.

If you’ve got a dream of becoming a full-time entrepreneur, then you shouldn’t let such obstacles stand in your way. The list of now huge, still thriving companies which started back during the Great Depression is surprisingly lengthy and includes the likes of United Airlines, GEICO, Duracell, Rubbermaid, Tyson Foods, Publix grocery stores, and Esquire magazine. Other companies like Ford and Heinz, which were already in existence when the Great Depression occurred, aggressively expanded rather than retreated, and reaped the benefits once the economy improved. You, too, can get your own entrepreneurial idea off the ground during this tough time; you’ll simply have to be aggressive about paying off your student loans first, and/or look for financing from angel investors or crowdfunding sites like Kickstarter, rather than traditional banks.

But, if you’re finding it onerously difficult to start your own business, or even if you have no desire to do so, then I highly encourage you to stop thinking about entrepreneurship as an all-or-nothing endeavor.

One of my favorite books that I read last year was 10% Entrepreneur by Patrick McGinnis. Instead of quitting your day job to pursue a full-time start-up business, Patrick recommends keeping your 9-5 and simply investing just 10% of your money, time, and talent to different entrepreneurial ventures. By doing so, you maintain the security that comes with having a regular paycheck while increasing overall income with revenue from your side gig. Your side hustle might eventually grow into something full-time, or it can just be a perennial source of extra money to you. Check out my podcast interview with Patrick for more in-depth tips and advice.

How can you become a part-time entrepreneur? We’ve got 37 side hustle ideas right here. Use the revenue you earn from moonlighting to pay off debt and to create capital for your other financial goals like retirement and homeownership.

Whatever financial obstacle you’re facing, there’s a way around it, and with a little commitment and sacrifice, you’ll be able to come out stronger on the other side.

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