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For Your Business December 16, 2019

Millennials are drowning in student loan debt: How financial wellness programs can help

With tuition rising almost eight times faster than wages, it is no wonder that millennial student debt has skyrocketed well beyond the level experienced by their Gen X and Baby Boomer parents.

According to the National Center for Education Statistics, the average cost of a college education in 2016 was $104,480–double the cost of the same degree in 1989 (adjusted for inflation). Meanwhile, wages increased only $5,000 per year during the same period of time, reports the Federal Reserve Bank of St. Louis.

Student loan debt reached an all-time high of $1.6 trillion this year, with the average college graduate leaving with a diploma–and $30,000 in loans.

The 2019 Poverty and Inequality Report from Stanford University indicates that in comparison to Generation X (born between 1965 and 1980), millennials (born between 1981 and 1996) take out more and larger student loans and default more frequently. The report attributes much of this to higher tuition and the unfortunate timing of graduating into a post-recessionary economy.

Unfortunate timing or not, more than half of millennials who took out student loans say that going to college hasn't been worth the financial burden, according to a Morning Consult survey.

But the negative ramifications of student loan debt are far reaching, making the need for financial wellness education more important than ever.

Home buying

Because of student loan debt, millennials are more likely to put off buying a home until long after the age when their parents had begun building equity. A recent Zillow report and SmartAsset study found:

  • 25 percent of home buyers have been denied a mortgage due to debt.
  • 25 percent of renters have been denied a rental agreement due to debt.
  • 76 percent of home buyers with student loan debt have a down payment of less than 20 percent, which often increases the interest rate.
  • 31 percent of millennials want to own a home but aren't currently saving for one.

The housing market rebound has increased both home sales and rental prices. According to the U.S. Census Global Property Guide, the average cost of a home in the U.S. is more than 28 percent higher than it was 10 years ago, and rental prices have increased by 33 percent in the same time period.

However, since millennials are not buying homes, they are not reaping the benefits of rising home prices. Instead of creating wealth with property like their parents did, they remain renters and fail to build equity.

Saving and investing

Today's average millennial employee earns $35,592, which is 20 percent lower (when accounting for inflation) than Baby Boomers earned at that age, according to SmartAsset.

Whether renting or paying a mortgage, these employees are spending between 30 and 40 percent of their annual income on housing costs, according to data from the U.S. Bureau of Labor Statistics. Twenty percent of their annual income is going towards student loan debt.

Add in the cost of food, transportation, insurance, taxes and medical care, there is very little left for saving and investing. This is corroborated by several recent surveys of millennials:

  • Only a third own stock, down 20 percent from 2001 
  • Net worth is 20 percent lower than Baby Boomers 
  • 55 percent have no retirement savings, according to MorningConsult
  • About 75 percent have less than $5,000 in a savings account and almost 50 percent live paycheck to paycheck.

These employees will not be able to grow their retirement savings through compounding returns—and they may not have the same level of Social Security benefits when they retire.

This means that millennials will retire later, which is costly for employers:

  • Healthcare costs for a 65-year-old employee are double that of a 45 year old.
  • A one-year delay in retirement costs $50,000 per employee in sick leave, personal leave, life and disability insurance and healthcare.
  • Younger employees have less opportunity to advance, leaving them with stagnant wages on top of student loan debt.

Mental health issues

Financial stress can lead to mental health issues. Blue Cross Blue Shield Health Index data shows that depression is on the rise among millennials, increasing 47 percent since 2013.

Financial stress has been linked to post-traumatic stress disorder, substance abuse disorder, suicide and mental health disorders, especially among millennials.

Employees coming to work stressed by finances also deal with high rates of burnout, with millennials experiencing the condition more than other workers.

  • Gallup found that 30 percent of millennials experience significant burnout at work and 70 percent feel at least some burnout.
  • A PayChex study found that more than 50 percent felt their mental health had a major impact on the job with another 38 percent stating it had a moderate impact.
  • Because more than a third of millennials feel that their workplace contributes to their mental health issues, 50 percent have voluntarily left a job for mental health reasons.

The cost of mental health issues to businesses is substantial. Presenteeism and absenteeism due to mental health conditions cost 217 million days per year–$16.8 billion annually in lost productivity, the MindShare Partners report found.

Consumer spending

The U.S. economy is driven by consumer spending, and millennials with student debt often spend less on consumer goods. Student Loan Hero found that of those with student loan debt:

  • 44 percent reduced travel
  • 33.5 percent limited holiday spending
  • 30 percent went out with friends less
  • 18 percent stopped donating to charity

When millennials spend less, companies have lower profits and slower financial growth. As those with student debt make payments rather than purchases, the usual economic uptick the country should experience as millennials age will be decreased.

Employee financial wellness programs can help

Although student loans helped your employees get an education, the benefits can be outweighed by the burden of debt. Providing an employee financial wellness program can make a big difference, however. In addition to helping employees create a budget and track expenses, financial wellness programs can do the following:

  • Explain student loan debt and the effects of forbearance and default and provide information on student loan consolidation
  • Teach employees about emergency savings
  • Provide simulators to see how payment options affect debt
  • Explain how to improve credit scores in order to get better rates for debt consolidation
  • Teach the benefits of retirement savings and different investment options

 

This article was written by C.J. Marwitz from BenefitsPro and was legally licensed through the NewsCred publisher network. Please direct all licensing questions to legal@newscred.com.

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