A new survey report from Charles Schwab, “Young adults lack basic money know-how for long-term financial success,” indicates the youngest cohort in the U.S. work force has incurred average savings of just $1,628 and debt of $8,003.
According to Schwab’s survey data, many young people “seem to have a genuine lack of understanding about debt in general.”
“A decade after the onset of the financial crisis, American young adults are optimistic about their future financial success but demonstrate behaviors that suggest they may be unprepared for the realities of achieving it,” the report warns. “While 81% of young adults ages 16 to 25 witnessed their parents experience financial hardship, 76% believe they will have a better financial future than their parents.”
On average, young adults in the survey expect to retire at 60 years of age, seven years earlier than full Social Security benefit eligibility for their age bracket. According to Schwab, more than half (53%) believe their parents will leave them an inheritance, “versus the average 21% of people who actually received an inheritance of any kind between 1989 and 2007.”
“Their optimism may be leading to bad money habits,” the report warns. “Young adults are accruing significantly more debt, but their savings don’t meaningfully increase. On average, Young Millennials (ages 21 to 25) have saved just 15% more than Gen Z (ages 16 to 20), yet they have 169% more debt.”
The report goes on to warn about the “troubling lack of knowledge about debt” among all age groups in the U.S., but especially among young adults.
“At a critical point in their financial lives, there is plenty of confusion about debt. Many young Americans do not understand the fundamentals of debt—in particular the difference between good and bad debt,” the report states. “Only 38% believe student loans are good debt. Respondents are similarly split on whether car loans are good or bad debt.”
In addition, according to Charles Schwab, while 81% of young adults say they want to own a home, only 54% believe that a mortgage is considered good debt. “Most concerning” to researchers, 51% say they currently have some sort of debt, but only 3% say they would pay down that debt if given an extra $1,000.
The online survey was conducted by Logica Research (formerly known as Koski Research) from June 12 to June 20, 2018, among 2,000 Americans ages 16 to 25. Sample quotas “were set so that the sample is as demographically representative as possible.”