W&F Issue 7 2018

www.wealthandfinance-news.com 28 Wealth & Finance International - Issue 7 2018 Millennials constantly hear that time is on their side, but for the first decade of their adult lives they have been the victims of bad timing. Over the last decade, they saw the devastating effects of a market downturn. According to the Bank of the West 2018 Millennial Study, these equities- shy millennials have turned to real estate as the cornerstone of their investment portfolio, with homeownership emerging as the most popular ingredient of their American Dream (56%). Following homeownership, half cited paying off debt (51%) and having the financial means to retire comfortably (49%) as the second and third most critical components. And yet, their desire to own a home is pushing some millennials to risk their other goals by taking on mortgages and even borrowing against their retirement savings. In fact, one in four say that they are willing to withdraw or borrow against retirement funds to finance down payments for a home. “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.” 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 The Millennial American Dream: Or How to Stop Worrying and Overcome Bad Timing Bank of the West 2018 millennial study finds that despite a perfect storm -- the Great Recession, low wage growth and low bull market participation -- millennials are knowledgeable, determined, and confident in their financial futures. inked the deal they felt stuck in one place, realised there was damage to the house, or discovered that the space didn’t work for their family. Further, 41 percent cited financial regrets, saying they felt stretched too thin financially, it is costly to maintain their home, or they should have put more money down from the start. “A white picket fence can certainly be a smart investment. To help avoid buyer’s remorse, millennials should consider covering their bases and kicking the proverbial tires—reflecting on their physical and financial wishes for their home before they sign on the dotted line,” said Bailey. Time has worked against millennials when it comes to home-buying. Most millennials weren’t ready to close on a home when housing prices were at their lowest and interest rates hovered just above zero. And for those who may now feel ready, the new Tax Cuts and Jobs Act eliminates some of the homeownership tax breaks, removing the ability for homeowners to deduct state and local property taxes from federal tax bills. Despite this, four in 10 millennials in our study are homeowners already, with nearly all others interested in someday owning a home (92%). And although they saw how quickly home values can depreciate during last decade’s housing crisis, 59 percent still believe it is a good investment or say it makes more financial sense to own than rent. Millennials Relationship with Debt? “It’s Complicated” Sixty-nine percent of millennials in the study 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. And when it comes to paying for everyday purchases, they are a mixed bag. When paying for items in-person, they avoid credit cards and are most likely to use cash, checks, or debit cards (59%). Yet, on some level millennials are comfortable with leveraging themselves for certain express purposes (like homeownership—a purchase that puts most people into debt for decades). Over four in 10 millennials don’t pay their credit card balances off in full each month. Most of this group says they feel comfortable carrying this revolving debt (59%)— particularly those who are already homeowners (66%). And when making online purchases, they’re more inclined to use credit cards or credit card rewards, such as cash back or points (52%). “Debt doesn’t have to be a dirty word,” said Bailey. “By responsibly borrowing the amount that is just right for their individual financial situation, millennials can fund their homeownership dreams, while freeing up capital to invest in the markets today when they still have a long time-horizon on their side.” Ripe with Opportunity:Time to Get Off the Side- lines and Into the Markets Millennials feel overwhelmingly confident in their own ability to use financial products—including common investment vehicles, such as stocks (66% in our study 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 percent agreeing that the more time they have until retirement, the more aggressive they can be with their investing strategy.