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Student Debt Causes Strain in Millennial Financing

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A recent survey by Bank Rate revealed that student debt has caused a resistance in millenials to make large purchases, resulting in a delay in at least one life or financial milestone. According to the survey, nearly 3 in 4 millennials have delayed a major milestone due to student debt, including 28 percent delaying the purchase a vehicle.

That last bit of information is critical for shop owners. As millennials continue to become the dominant purchasing demographic, this delay could affect the amount and type of customers coming into the shop, as well as how much they’re able to spend.

The survey was conducted on 3,885 adults, according to Bankrate.com’s senior economic analyst, Mark Hamrick, and took place over the span of five days. The goal was to get an overall snapshot of the American public, Hamrick says.

“We did a survey a couple years ago,” Hamrick says. “I think, broadly speaking, the problem with student loan debt is that the level of debt that we’re seeing continues to accumulate.”

The goal of the survey was to measure how debt affects adults ages 18 and up, where the company learned more about the financial situation with millenials.

“Millennials are the most highly discussed or interesting group” Hamrick says. “We’re talking about people who are getting their feet planted in the workforce and in their own personal lives; they’re single or they’re married, or they’re looking to have children.”

Hamrick sat down with Ratchet+Wrench to discuss how the findings of the survey reveal how exactly student debt is affecting spending habits across the United States as well as how citizens are prioritizing expenditures.

 

What trends have you seen in the survey since it was previously published?

What’s interesting about the survey is that we found [how] student loan impacts are really found across a broad spectrum. For example, if you look at the percent of Americans who delayed a major financial decision because of their debt, it’s about 70 percent beginning at age 18 and stays above 70 percent all the way up to age 38—the millenials are the biggest cross section to that at 73 percent.

It stays at 62 percent for Generation X, and then 50 percent at baby boomers, and 39 percent at 74 plus. It’s pretty substantial across the board.

 

Based on the survey, how has student loan debt affected millennials’ purchasing habits?

We know that there are some broad brushstroke assumptions being made about millennials: there are a number that prefer to live in urban environments, they prefer to use mass transit or avoid car ownership.

I also think the fact that they are—as our survey indicates—hamstrung by student loan debt, where many are having to delay things like purchasing a home, saving for retirement, saving for emergencies, buying or leasing a car, having a children or getting married—it shows that they are having to make some tough decisions about what their priorities are.


What generation is likely to own a vehicle and visit shops for service?

I would say to the degree that the older Americans are, at least up to a point, are more likely to own an automobile. We know that one path toward successful ownership of a vehicle is being at least diligent about performing appropriate maintenance.


Based off of your findings, what can shop owners learn about their customers’ financial needs today?

More recently when we did this survey, only 40 percent of the Americans told us they can cover a $1,000 emergency expense from savings. An example of an emergency expense is an unexpected $1,000 emergency expense such as a car repair or an emergency room visit.

Here we are a decade deep into the “economic expansion,” and we see these broad brushstroke statistics of the unemployment rate being low or how 200,000 jobs are being added a month, but yet, we still have this massive cross-section of the American public living paycheck-to-paycheck.

Even within the context of what’s being regarded as our strong economy, a $1,000 or more car repair will basically force people to have to borrow or take some other extraordinary means to accommodate that expense. That is a signal that probably these car owners are going to be very sensitive to costly repairs that go above their ability to take it out of savings.

 

 

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