What Are Millennials Waiting For?

Make room, Mom and Dad. PNC economist explains how student loan debt has led to the “Great Delay” for our largest living generation.

Ah, the joys of youth. Unless you’re a millennial.

Previous generations of 20-somethings established independence with job promotions, new cars and home ownership. Today, many of the 83 million members of Generation Y, born between 1980 and 2000, are saddled with substantial college debt, a struggling economy and expensive housing.

The results: Years of monthly payments to repay student loan debt that averages about $35,000... a record number of young adults who live at home with mom and dad... homeownership rates among people under 35 continue to trend lower... and a new drag on the economy that experts have termed the “Great Delay.”

The impact is major now that millennials have surpassed Baby Boomers as the nation’s largest living generation

“Basically, young adults are putting off major life milestones because of their huge debt burden,” said Mekael Teshome, a PNC economist and a millennial himself. “Many have delayed buying a car, moving out of their parents’ house, getting married or having children. This short-term forecast slows everything down. Typically, as young adults move out and move on, they have to buy things and that helps retail consumer spending in general."

life stage graphics

Homebuyers’ Regrets

Their student loan debt will be a drag on the housing market and it’s unlikely to return to the levels before 2006, Teshome said. “A mortgage is much too permanent for them – too restrictive at this time - and as a result, traditional real estate hasn’t had the big rebound that was expected,” he said.

Multi-unit housing is currently red-hot. Since millennials change jobs every couple of years on average, he added, renting gives them the flexibility and the mobility to move with less effort.

They’d rather sit on the sidelines, rent for their 20s and early 30s, build their financial independence and save toward retirement, especially since there is a looming fear that Social Security may not be around when they retire.

Renting vs. owning also means Gen Y’ers miss out on tax breaks and an asset that can contribute to wealth creation. The economy also takes a hit. Every two home sales create a job, according to the National Association of Realtors, and contributes about $60,000 to the economy.

Costly College Education

College graduates aged 25 to 32, who work full-time, earn about $17,500 more per year than peers with a high school diploma, according to the Pew Research Center.

But many millennials graduated from college during the Great Recession and are now saddled with substantial student loan debt. Depending on their degree and the cost to earn it, however, some graduates could end up with a job and loan debt where they are worse off financially than when they started college.

“We’re not seeing massive growth in enrollment like we did a few years ago,” Teshome said. “Students are now shopping around for the best and most economical college education, forcing schools to rein in costs.”

expenses graphics

Dare to Dream

Some studies have shown millennials are saving earlier toward retirement than Gen X’ers or Baby Boomers did at the same age. It raises the question, why would this immediate gratification generation think about what and where they are going to be 40-50 years from now?

Teshome said the Great Recession taught many financial lessons. While Gen Y’ers may change jobs more frequently, they also can usually roll over their 401(k) savings from one employer to the next. The “free money” from company matches are a good incentive to participate, he added.

“We hope and expect that over time, millennials will begin to settle down once they start a family in their 30s and 40s. Once they get a handle on their college debt, they’ll start saving and thinking about the future.”

Get more analysis of economic and financial trends from the PNC Economics Division

Mekael Teshome
Mekael Teshome says student loan debt is a 
drag on the economy

Millennials (Ages 18 to 34):

  • One-third of the U.S. labor force; unemployment rate of 8.6% vs. 13% in 2010
  • More likely than Gen X to work 3-6 years for same employer
  • 31% live with parents vs. 28% in 2007
  • 30% married in 2013 vs. 77% in 1960 (ages 20-34)

(Source: White House-The Council of Economic Advisers)