Understanding Millennial Finance
Not many college students will find “travel 3000 miles on a train with a group of entrepreneurs” as a part of the job description for a summer internship.
During my internship this past summer with Affinity Plus Federal Credit Union in St. Paul, Minnesota, I was approached by my boss to carry out such a task. I was assigned to create a way to better engage the millennial generation with the personal finances. Part of this project was to participate in the Millennial Trains Project, a transcontinental train journey geared towards leadership and entrepreneurship. My project focused on understanding the average college student’s knowledge of financial literacy in the areas of student loans, credit cards, credit scores, and budgeting.
Now why would a 20-year-old college student be interested in such an issue?
There is the obvious looming fear of Social Security running dry before any millennials will be able to tap into it. There’s also the current state of the economy which boasts an unemployment rate of 7.4% and unemployed MBA’s making Caramel Macchiato’s at Starbucks. Furthermore, the USA Today reports that students face an average outstanding student loan balance of $27,547. Also, the Allstate Foundation has found that nearly 50% of students know how to use a credit card effectively and that a survey of graduating college seniors from Capital One showed that 55% of these students are worried about building a positive credit history after college.
Yet if you were to ask students about these pressing issues, you would be surprised that students actually don’t know a lot about the debt and personal financial struggles they face as I have found out in my experience on the trip. After stopping in 7 cities and talking with current students and college graduates at 5 different colleges, I came to some conclusions about students’ knowledge and what universities and financial institutions can do to help students.
Lesson #1: Students take out a lot of money they don’t know a lot about.
If you were a college freshman and received a letter from your school, regarding your financial aid award that equated to half of your school’s cost of attendance, why wouldn’t you take this? It’s called an award, so it’s like a gift, right? Well, even though 63% of the millennials I talked to have student loans, 65% of them had little to no familiarity with the repayment of their loans and almost 70% of them don’t know their interest rates. I asked students why they didn’t have “interest” in their interest rates and discovered that students are just more focused on the “here and now” with school and less interested in what lies ahead in 4 years.
There were a few exceptions. I spoke with a student of Creighton University in Omaha, Nebraska that stood out among the rest. He was working two jobs on campus and paying off his student loan bill while pursuing his Master’s in sociology. His family had faced financial struggles all of his life and so he empowered himself to take charge of his own finances while in school to make it less of a burden when he finished school.
I also made a point to visit the banks and credit unions on the various campuses to see what they had to say about this issue. I was surprised to hear that these financial institutions do not offer a lot of assistance in helping students become more financially literate. They will help students if they come in with questions about their private loans, but they seldom will go out of their way to reach out to students. There are some banks that offer budgeting seminars but have had little attendance with, so they opt out of holding these types of services to students.
Lesson #2: We love our credit cards and how much we can max them out to.
67% of the individuals I talked to said that they have a credit card. This conflicted with my preconceived notion that millennials don’t typically have credit cards because they know very little about them. There were quite a few students who had credit cards tied to their parent’s credit card account, which might suggest why students don’t know a lot about them.
We have been engrained by teachers and parents throughout our adolescence that they are nothing but a trap. As students we always hear about the disaster stories – the guy who puts $25,000 on his credit cards and is unable to pay off his debt. We never hear of success stories of the people who pay off their bill every month and are responsible with their credit card debt.
One thing that shocked me the most was that only 31% of these students know their interest rate. In their defense, as I found out in Omaha, if you are paying your credit card bill off in full then there is no need to know your interest rate. The most surprising find was that almost 80% of these individuals know exactly what their credit limit was on their card. From this, it is easy to interpret that students really only care about how much money they can put on their credit card before it gets denied.
Lesson #3: What’s a credit score anyways?
The older the individual I talked to, the more they knew about credit scores. I found that 100% of the “older” Millennials (upwards of 25) knew what a credit score, what it’s used for, and what influences it. On a whole, though, Millennials knowledge about credit scores was basic: it is used for taking out loans and that credit cards can ruin them. In total (of all the Millennials I spoke with), only 50% of those surveyed knew what a credit score was used for.
What’s more, only 58% of individuals had checked their credit score in the last 12 months. This was either from their credit being pulled by housing companies for renting an apartment or for taking out a loan. When asked, 20% of them could actually tell me what their score was exactly.
There is a lot more to a credit score than one would actually think. It is more than just a number, it is a determinant of your future buying potential. I wrote a little blog about this in case you might be interested to know more.
When it comes to personal finances and millennials, there is no quick fix. We can only make it easier for them to understand by simplifying the language of finances and making information more widely targeted and available for this demographic.
Sean Kolodziej is currently a junior at North Dakota State University and is pursuing a degree in Finance. He is a former intern of Affinity Plus Federal Credit Union and currently serves as the NDSU Lions Club International treasurer. (Photo Credit: Creative Commons)