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Playing it safe

Kids these days, right?

The under-35 “Millennial generation” is “lazy, entitled, selfish and shallow,” according to Time. “They often are unable to think for themselves,” reports slate.com. “They don’t necessarily understand the value of money because many of them have no experience with it, and yet, incredibly dichotomously, they think they deserve to be highly paid,” says Business Insider.

But recent data reveal that, at least when it comes to money, Millennials are far more careful than their “spoiled” reputation would suggest—and that will reshape the economy, for better or worse, experts say.

“In a nutshell, [there will be] some short-term pain, but ultimately long-term gain,” said Greg McBride, chief financial analyst at bankrate.com. “In the long run, we’re all better served if American consumers have more savings and less debt. But it’s going to take a while to get there … for an economy dependent on consumer spending.”

A survey commissioned by Bankrate last month found that 53 percent of 18- to 29-year-olds had more savings than credit card debt, compared with 47 percent of those aged 30-49. That kind of financial health is also reflected in other measures, McBride said.

“We see that, I think, in a lot of different aspects of financial security,” he said.

Chicago marketing firm Lab42 found that 66 percent of Millennials save extra money left over from a paycheck, and 18 percent use it to pay off debt—and 89 percent create a budget (though only 20 percent always stick to it). Nearly two-thirds have at least three months’ worth of rent or mortgage payments saved. More than half contribute to a 401(k).

Households headed by people younger than 35 carry less credit card debt than older households—in fact, the share of those households holding any kind of debt has dropped to its lowest level since the government started keeping track in 1983, according to a Pew report last year. The report also found that young people are buying cars and houses at a slower rate than previous generations did.

In short, after living through a financial crisis that led to the worst recession in generations, Millennials have become cautious: shunning, or at least delaying, traditional financial milestones that once were markers of adulthood. Some experts say that will have a calming effect on the economy—but others say that kind of aversion to risk can adversely affect young peoples’ prospects.

“I feel like a lot of our gripe is that we inherited an economy where we aren’t able to thrive,” said Lisa Murphy, 24, who lives in Bronzeville with her grandmother. “The ‘work hard’ rhetoric that’s been given to us doesn’t really hold true anymore, because the economy is so different. The job market is so different.”

Murphy spent a year and a half at Beloit College in Wisconsin before dropping out for financial reasons. She is left with medical bills and about $7,000 in student loans, but no credit card debt—”I don’t have credit cards,” she said. “I am terrified of it. … I don’t trust myself to have a credit card.”

Neither does Arika Kaosa, a freelance writer and artist in Lakeview.

“I think overall I’m extremely financially responsible,” she said. “I think one thing that has really helped me throughout my life so far is never having a credit card. … I’m pretty aware of my finances and what I have to do.”

“It’s hard to build credit if you haven’t had it,” she continued. “I’m 27, and it does sometimes work against me, but I’m really not too worried about it.”

And Kaosa and Murphy say homeownership is barely on their radars.

“I don’t know, that whole housing boom and fall sounds scary,” Murphy said. “I would like to have somewhere where I can establish myself … [but] in the next 10 years? Probably not.”

That attitude falls in line with current housing and credit trends, according to Marc Hayford, professor of economics at Loyola’s Quinlan School of Business: After the financial crisis, banks made it harder to borrow money, and fewer people had jobs—so not only do underemployed young people have a hard time getting loans, they may be gun-shy about borrowing in the first place.

“What this current generation probably learned is that owning a home is not always a good investment,” he said.

Is that bad news for an economy so dependent on homeownership?

“It is healthy for an economy if the lending that’s going on is going to lend to people that can pay it back,” Hayford said. “To have a sustainable, healthy economy, we wouldn’t want people in this group to overextend themselves, to get in over their heads and buy homes too soon.”

But caution may not be a virtue—and some research suggests that people who grow up in hard economic times may stick to their risk-averse habits to their detriment.

Lisa Kahn of Yale’s School of Management tracked the economic success of those who graduated from college during the recession of the early 1980s. Even decades later, their earnings lagged behind those who graduated in better times. She theorizes that those who grow up in hard times may be less likely to feel confident taking risks.

There are signs that credit use is on the upswing: The Federal Reserve Bank of New York reported last month that consumer debt increased by $241 billion in the last three months of 2013—the biggest quarter-to-quarter increase since 2007. And the New York Fed credits younger age brackets—”The Young and the Riskless,” as they call them—for the bump in borrowing.

Kaosa is still erring on the side of caution.

“I think we have seen people, especially family members or neighbors and co-workers or whatnot, just generally people in society, who didn’t save their money and weren’t responsible with their money,” she said. “And now they are working past the general retirement age of 65 and may not be able to retire. … I think, for myself, I am financially steady. I do have to work for three different websites and sell my artwork to make everything work, but I am financially responsible.”

McBride, the Bankrate analyst, sees that as a good thing.

“I think a lot of those habits will be beneficial,” he said. “The aversion to debt, reluctance to overspend and the inclination to save—that’s really the recipe for financial success.”

mcrepeau@tribune.com

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