Attracting and retaining millennials— those ages 18 to 34—is critically important to credit unions. Young members, in part because they’ve historically been heavy borrowers, are the lifeblood of a healthy, vibrant cooperative finance sector.
But young people face some especially important challenges in what has been a comparatively weak economic recovery. That makes engagement more difficult—but also more important than ever.
For evidence of the challenges one need look no further than the jobs picture. While top-line metrics clearly show significant U.S. labor market improvements, various ancillary measures continue to raise important concerns.
The current 5.4% national unemployment rate is nearly a point lower than year-ago readings, is well below the 10% cyclical high, and is nearing the prerecession level of 5%.
The economy added 2.8 million new jobs in the year ended April 2015, and current employment in the nonfarm sector is 10.5 million higher than during the depths of the Great Recession.
Still, the U-6 unemployment rate, which accounts for those who have dropped out of the labor force as well as those who work part-time but are seeking full-time employment, is 10.8% and remains elevated from a historical perspective. At 30.8 weeks, the average duration of unemployment today remains roughly double the historical norm.
Millennials are having a particularly tough time in this regard. Workers ages 25 to 34 currently have a slightly elevated 5.8% unemployment rate, while those ages 20 to 24 reflect a remarkably high 9.6% rate.
Another troubling statistic: Recent college graduates have consistently experienced unemployment rates that are double the average of their counterparts with college degrees who have been in the labor force longer, reports the Bureau of Labor Statistics.
Often blamed for these developments are baby boomers who have delayed retirement and technological advances resulting in increasing automation.
Is college worth the cost?
Whatever the underlying causes, these trends come with potential significant negative consequences for lifetime earnings potential, purchasing and borrowing behaviors, and (perhaps most important) retirement readiness.
The data makes it clear: Today’s students are paying more to attend college, they’re amassing record levels of debt to obtain degrees, and in the aggregate they’re experiencing relatively flat earnings. Many graduates are struggling to find jobs, and still more say they can’t find good jobs.
A recent Accenture study, for example, found that 49% of recent grads consider themselves underemployed or working in a job that doesn’t require a college degree.
And while these trends have many questioning the value of a college degree, it’s clear educational attainment is critically important. Higher levels of education attainment remain associated with a number of positive life outcomes.
While challenges for recent college graduates are more obvious today, the difficulties experienced by those without college degrees are greater still. For example, taken as a whole, the unemployment rate of college-educated workers (bachelor’s degree or higher) now is 2.7%. That’s half the 5.4% rate for all workers.
And while wage growth for college graduates has been weak recently, the gains for those without college degrees have been even weaker.
Today, median weekly earnings for college-educated workers are roughly double the norm among those with lower levels of education. The college wage premium remains near all-time highs.
Delayed retirement saving
But financial challenges and bad financial choices are obvious. One of the most powerful financial decisions a younger worker can make is when and how much to contribute to savings, especially retirement savings.
Evidence indicates millennials are putting this off: Workers younger than age 35 have swung into dangerous territory with a savings rate of -2%, according to Moody’s Analytics.
Young people—recent college grads in particular— are feeling the pinch because the retirement savings window has shortened. Given job-market difficulties, younger Americans are entering the workforce later: The average age at which younger workers reach median wage has increased from 26 to 30 since 1980, according to the Insured Retirement Institute (IRI).
This is a big deal regardless of whether the delay occurs for economic or other reasons. The IRI says a worker putting off saving until age 35 would need to save more than 16% of his or her annual income to produce the same retirement income at age 65 as someone who started saving at a 10% rate beginning at age 30 (“Percent of income required to reach age 67 retirement goal,” p. 38). Starting at age 40 would require saving more than 26% of income.
Of course, more cautious spending (and borrowing) behavior among recent college grads and others is reflected in overall economic activity: 2.4% annual average gross domestic product growth in this recovery versus 4.2% average annual growth in previous post-World War II recoveries.
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