In the relatively short time they've been in the labor force, millennials have experienced both dramatic highs, like the decade-long bull market, and lows, like the financial collapse of 2008. Now, the pandemic-induced recession of 2020 promises to be yet another historic milestone.
However, unlike the Great Recession, which hit when many millennials were barely beginning their working lives, this latest economic downturn finds them older, more established, and wiser about how they weather a downturn.
The pandemic has prompted nearly 70% of millennials and Gen Zers to "reset and reevaluate how they handle their money," according to a new survey from Laurel Road, a private student loan lender. In fact, 37% of the 2,000 people surveyed say they've made an effort to save more during the pandemic and even more put a set amount from every paycheck into savings accounts.
Overall, Americans have been saving more money since the pandemic first started. The personal savings rate — the percentage of income that Americans put into savings — hit a historic high of 33% in April, and even though it's fallen since then to 13.6% in October, it still hasn't been this high since 1975.
One factor that's contributed to high savings rates, especially for younger adults, has been the forbearance of federally backed student loans that was enacted in March. For much of this year, borrowers haven't had to pay to make a single payment (or accrued any interest) on their student loans thanks to that program.
Of the more than 1,500 survey takers who reported having federal student loans, 3 in 5 say they've used that year-long reprieve to bulk up their savings. That extra breathing room has allowed millennials and Gen Zers not only to save but to get themselves on firmer financial footing overall, says Alyssa Schaefer, chief experience officer at Laurel Road.
"They're basically using the government holiday to really help further savings," Schaefer says, adding that the year of forbearance "may have even given millennials and Gen Zers the leg up when it comes to personal finance and some other savings goals."
Financial experts would likely agree: Suze Orman has suggested people focus on building rainy day funds. And if you get a second stimulus check, "the first priority is save, save, save," she recently told Grow.
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When money is tight, extra cash should go to bills that can't be put off and into emergency savings, Orman says. "Even eight months of an emergency fund isn't enough. It is eight months since this started. It's longer than that. It could be even longer than a year," she says. "So the truth of the matter is, it's probable that you should have one year of an emergency fund right now."
That tracks with data collected by Laurel Road: When the survey asked respondents what they'd do with an extra $1,000 next year, more than 38% said they'd put that money in a savings account, almost double what it was for any other category, including paying back student loans. That's flipped from previous years, when more people prioritized paying down their college debt, Schaefer says.
The federal forbearance on student loan payments was initially a six-month holiday included in the CARES Act that Congress passed in March, but President Trump extended it in August when lawmakers failed to negotiate a second pandemic relief bill. Then Education Secretary Betsy DeVos extended it further to the end of January 2021.
The grace period on student debt has benefited borrowers across the spectrum, but it hasn't come without its own set of stresses. Federal student loan debt surpassed $1.7 trillion in the third quarter of 2020, and the nonprofit group Student Debt Crisis recently found that 77% of borrowers won't feel secure enough to restart paying their student loans until at least June 2021. More than half rated their financial wellness during the pandemic as "poor" or "very poor."
"The stress borrowers feel when the reprieve ends will depend in part on how they handled the extra funds throughout this year," Kevin Mahoney, CFP and founder of Illumint in Washington, D.C., told Grow recently. "Those who shifted those payments to a savings account likely never viewed that money as available to spend. But those who did allow those funds to flow through their monthly budgets may have a harder time adjusting once repayments resume."
This story has been updated to reflect Alyssa Schaefer's title.
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