By Caroline Farhat
For the past half-century of American history, material objects have been a primary source of value to the working class of Americans. Following World War II, many Americans dreamt of owning a suburban home, driving a car, and joining in on the baby boom. The U.S. saw significant expansion through the 40s and 50s, gross national product rose dramatically, as did personal expenditures on things. By the end of the 50s, the majority of families owned a television, a car, and a home. By 1960, blue-collar workers became avid buyers, enjoying more disposable income through the 1970s.
Today is a different story. A study found 74% of Americans value experiences over things. The reason for this shift in ideology can be tied to a number of things, such as younger adults having watched the effects of the 2008 recession and, as a result, feel less of a need to be tied to material objects. This is leading to many millennials skipping the mall to attend music festivals, skipping homeownership to live in the city, and putting off having children for added freedom. Rather than defining wealth by what they have, many young adults are measuring wealth by what they can experience.
Typical Measure of Wealth
Wealth is typically measured by calculating a person’s net worth. This is calculated as assets - liabilities = net worth. Assets can include homes, cash, retirement accounts, and stocks. Liabilities can include all debts such as student loans, auto loans, and mortgages. Take a look at this example to calculate net worth:
- If a person owns a home valued at $500,000, a car valued at $22,000, they have $15,000 saved in a bank account and $33,000 saved in a retirement account, they would have a total of $570,000 in assets.
- If there is a mortgage on the home for $200,000 and a car loan for $5,000 and student loan debt of $30,000, this person would have liabilities totaling $235,000.
- This person’s net worth would be $570,000 - $235,000 = $335,000.
The net worth that is considered “wealthy” is subjective, however, a survey conducted by the Federal Reserve in 2017 found that the median net worth of families was just $97,300. Calculating net worth allows a person to see numerically how much wealth they have, but it is not the only way people define wealth.
Why Millennials Value Experiences
Calculating net worth may be considered an old measure of wealth by millennials (people born between 1981 and 1996), but why?
To begin with, millennials value relationships with others more than material objects. The benefit of being able to experience things with their friends and significant others seems to outweigh the benefit of accumulating wealth.
While millennials do seem to understand the value of saving money, they also understand the need for work-life balance. A study conducted by Deloitte found 57% of millennials say traveling is their top aspiration. This supports the notion that being able to enjoy life and experiences is a measure of wealth to millennials. This supports the notion that being able to enjoy life and experiences is a measure of wealth to millennials.
Another reason for the shift in measuring wealth is millennials are facing financial struggles that previous generations did not experience. According to a study by the Pew Research Center, more millennials have student loan debt compared to previous generations, and the amount of student loan debt they have is also greater. If you are dealing with student loan debt and high monthly payments, you may feel you are not able to purchase a home, start a family, or build the traditional standard of wealth. But even with a low net worth, millennials can partake in great experiences that add value to their life and make them feel wealthy.
Options to Build Your Wealth
If you have student loan debt, whether federal or private student loans, you may be feeling you will never be able to grow your net worth or have the life experiences you want – but that is not the reality. Student loans do not have to hinder you from growing your wealth. Check out these options to build your wealth:
- Start a side hustle. Earning extra money outside of your day job allows you the freedom to use the money how you want. It doesn’t have to pay the bills, it’s extra money that you can use to travel or put away for retirement. Plus your side hustle may lead you to passions and causes that are important to you which only further enhances your life!
- Refinance your student loans. When you refinance your student loan you may be able to lower your monthly payment and save interest over the life of the loan. The extra money you have monthly could go towards experiences to enrich your life and extra savings in the bank for emergencies. How much savings can you expect a month? Check out our student loan refinance calculator on our site to get an estimate of your savings.* Student loan refinancing is easy with the right lender. With ELFI you never pay an application fee or origination fee. You also receive a personal loan advisor who guides you through the process of refinancing.
- Create a zero-based budget. What if you were told to “spend” all of your income each month? This might sound crazy at first, but many financial experts regard this method as the most effective one out there. The concept of zero-based budgeting is that your monthly income minus your expenses should equal zero. The idea is that each dime you make should have a “job” and fall into a certain category in your budget. For example, if your take-home pay is $5,000, you have exactly $5,000 to spend, save, or invest. This can help you take control of your finances and ensure every dollar is put to good use.
- Use an effective debt-payoff strategy. Using the debt snowball or debt avalanche method of paying off debt can make payoff simpler and more effective. The debt snowball involves paying off debts with the lowest balances first, then moving onto the next smallest balance. The debt avalanche method involves paying off the largest debt first, then moving on to the next largest balance. Both strategies have their pros and cons, but both will also lead to a debt-free life.
Wealth is more than just the possessions you own or the car you drive. Experiencing a full life with great relationships and experiences can lead to happiness overall. By getting a handle on your student loans not only will your typical financial wealth increase, but so can your experiences in life. No matter how you measure wealth, you can achieve it while paying your student loans!
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