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Millennials Are Spending Less and Saving for a Rainy Day

While waiting in line last week at Starbucks, I realized that I was the only “guest” ordering black coffee — not a grande, no-foam macchiato concoction — and the only person using cash. The mostly millennial customers were flashing a smartphone app or swiping credit or debit cards.

Rainy day savings

The way our adult children spend and save money is very different from their boomer parents. “I want it fast, and I want it now” is the millennial mantra when it comes to spending, so why bother opening a wallet and fumbling with bills. They put a premium on speed, ease, efficiency and convenience in all their transactions, according to a study of 4,000 millennials by the Boston Consulting Group.

But that doesn’t mean they are whipping out credit cards. In fact, 63 percent of millennials don't carry a credit card, a Bankrate survey found. A Federal Reserve Bank study that asked consumers to keep spending diaries found that 40 percent of millennials used cash for purchases. They also had the highest preference for debit cards among any age group. Many like debit over credit cards because it helps them keep their spending in check, especially since so many are already paying off education loans. “Millennials have an aversion to incurring debt,” says Greg McBride,’s chief financial officer. “They much prefer to use debit and prepaid cards and person-to-person payment apps.”

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Cash, credit or debit, millennials spend their money seeking out new experiences and adventures — from sports to trips — instead of accumulating “stuff.” Eating out tops the list, with millennials spending $2,600 annually on food outside the home, about 10 percent more than boomers.

When it comes to savings, they tend to think like their grandparents, favoring cash and hesitant to invest in equities as a result of what Money magazine called a “crisis hangover” after the 2008 market crash. Another survey found that millennials are the most fiscally conservative generation since the Great Depression, with just a quarter investing in stocks. That’s compared with 58 percent of boomers.

Many, in low-wage starter jobs, don’t want to risk their meager savings in the market. But even if they had a sudden windfall, only 12 percent would invest the money because of a distrust of the stock markets and lack of investing knowledge.

Their saving rate is impressive with 56 percent squirreling away at least 5 percent of their income, although most have less than $5,000 saved. Those savings are targeted for a rainy day rather than retirement. “Millennials have gotten the memo on the importance of emergency savings,” McBride says. “They had a front-row seat for the financial crisis and saw how the recession impacted family members.”

But that doesn’t mean they like banks with their abysmal interest rates. A vast majority noted in a recent survey that they would rather go to the dentist than hear a pitch from a bank. An even larger number wish they could handle their financial needs with Google, Amazon, Apple, PayPal or Square rather than from their own nationwide bank.

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Despite lower levels of wealth and personal income than Generation X and boomers at the same stage of their lives, our adult children are relentlessly optimistic about their financial future. More than 80 percent say they currently have enough money to lead the lives they want or expect to in the future.

What’s enough money? In a UBS survey, almost half said that a household income of $220,000 would give them financial freedom. The best educated generation in history, they are willing to work for that income, with the majority equating hard work with success. That optimism about the future is justified, McBride says: “Millennials are much better at saving, less consumption-oriented, much more hesitant about incurring debt and more deliberate about finances than other groups.”

Mary W. Quigley’s blog, Mothering21 ,  tackles parenting of emerging adults and beyond.

Photo: dem10/iStock

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