Their desire to own homes is also pushing some of these young adults (ages 21-34) to risk their other goals by taking on mortgages and even borrowing against their retirement savings.
“Millennials are so eager to become homeowners that some may be inadvertently cutting off their nose to spite their face,” said Ryan Bailey, Head of the Retail Banking Group at Bank of the West. “The fact that nearly one in three millennials who already own their homes have dipped into their retirement nest eggs to finance their down payment is alarming. With careful financial planning, millennials can have it all – the dream home today, without compromising their retirement security tomorrow.”
Homeownership: Regrets, they have a few.
Millennial homeowners may be rushing into a home-buying decision without asking all the right questions. Sixty-eight percent reported buyer’s remorse, wishing they had been more prepared going into the purchase. Forty-four percent had issues with space itself, saying that once they inked the deal they felt stuck in one place, realized there was damage to the house, or discovered that the space didn’t work for their family. Further, 41% cited financial regrets, saying they felt stretched too thin financially.
“A white picket fence can certainly be a smart investment. To avoid buyer’s remorse, millennials should cover their bases and kick the proverbial tires—reflecting on their physical and financial wishes for a home before they sign on the dotted line,” said Bailey.
Millennials’ relationship with debt? ‘It’s complicated.’
Sixty-nine percent of millennials believe that you have really only made it when you are debt-free. Many (58%) even say they pay off their credit card balances in full each month. Yet, on some level millennials are comfortable with leveraging themselves for certain purposes (like homeownership — a purchase that puts most people into debt for decades).
Ripe with opportunity: Time to get off the sidelines and into the markets
Millennials feel overwhelmingly confident in their own ability to use financial products — including common investment vehicles, such as stocks (66% say they’re confident) and even some more complex options, like private equity (47%). Millennials also have age-appropriate attitudes towards asset allocation, with 66% agreeing that the more time they have until retirement, the more aggressive they can be with their investing strategy.
However, they are reluctant to actually invest, saying they feel safest keeping most of their savings out of the market (66%) — or, as seen with the 42% of millennial homeowners, in real estate. They are spooked by the financial crisis, with 65% saying living through that period has made them a more conservative investor.
“Millennials have been stuffing their savings under the mattress instead of putting their income to work through strategic investments,” said Bailey. “While this may seem safe, they are putting their goals at risk by keeping cash on hand. While they are young, millennials have time on their side and could be missing an opportunity to grow their savings over a lifetime.”
While millennials have lived through one of the worst financial moments in history, they truly have the advantage of time in the market. Balancing near and long-term goals, leveraging debt responsibly, and building a diversified portfolio will help millennials reach their American Dream.
• Six in ten Millennials believe that the American Dream is attainable today. Top ingredients to the American Dream are: owning a home, becoming debt-free, and retiring comfortably.
• Owning a home (56%) takes precedence over paying off debt or retiring comfortably for Millennials. In fact, nearly 1 in 3 Millennial homeowners have dipped into retirement funds for down payments.
• 68% of Millennial homeowners have regrets about buying a home, wishing they had been more prepared going into the purchase. They cited putting more money down and better inspecting the house as steps they wish they’d taken.
• Millennials have a complicated relationship with debt: while 69% feel they’ve made it when they are debt-free, they also say they’re comfortable carrying debt. They also understand that they need to take on a mortgage to become homeowners and are comfortable with this kind of “rite of passage” debt.
• More Millennials feel confident in their understanding of financial products than Gen Xers and Boomers, but are mistrusting of the markets due to having come of age during the financial crisis. In fact, 66% say they feel safest keeping most of their savings out of the market. This may hinder them as they prepare for retirement.