How the 2008 Financial Crisis Affected the Millennial Generation

FT Contributor
A frustrated millennial looking over a financial statement at his desk where a computer sits.

During the 2008 financial crisis, economies plummeted all over the world, resulting in widespread job loss, business failure, and financial insecurity. A decade later, while the economy has recovered in many respects, the economic crash still has a profound impact on everyday life for many Americans, and the threat of a future recession is always on the horizon.

The 2008 financial crisis was precipitated by an explosion of subprime mortgages in the housing market, where lenders targeted borrowers with poor credit and inadequate savings. The Federal National Mortgage Association, also known as Fannie Mae, encouraged the proliferation of subprime mortgages in an attempt to allow all Americans to achieve the “American dream” of homeownership. These mortgages were sold for more than their property value and bought up by big banks. These banks would then, in turn, sell the mortgages to institutional investors as securities.

While subprime mortgages allowed Americans who had previously not been able to qualify for a mortgage to afford their homes, the loans often came with high interest rates and variable payment structures that made it difficult for borrowers to pay off their mortgage or even afford their monthly payments. On a macro level, economists warned that this explosion of subprime mortgages threatened the United States economy by making the market increasingly dependent on rising property values.

By March of 2007, a crisis was brewing as more and more people defaulted on their mortgages and the housing market began to decline. By the fall of 2008, many financial investment companies were in crisis, including Fannie Mae and Freddie Mac, two of the major players in the subprime mortgage explosion. Lehman Brothers, a major investment firm that had been exposed to the subprime mortgage collapse, also went bankrupt, resulting in the largest bankruptcy filing in the United States to date at that time.

The stock market plunged into turmoil for several months as businesses continued to crumble and the government began to discuss a possible bailout.

The 2008 financial crisis had a widespread impact, not only on big companies and investment firms, but on average Americans. Many people lost their homes to foreclosure, lost their jobs, and lost much of their retirement savings. Others grew up in a world with an uncertain financial future rife with inequality and debt. The recession also had global implications, with economies around the world plunged into crisis alongside the United States.

Table of Contents

The Millennial Generation

The financial crisis had a profound impact on the millennial generation. Born between 1981 and 1996, millennials graduated from high school and college into a job market wrecked by the aftermath of the Great Recession. Unlike their parents and grandparents, millennials matured into a financially precarious world where the gap between the rich and poor was higher than ever, with another financial crisis always looming on the horizon.

As a result of these experiences, Millennials are more likely to be pessimistic about the future of the economy, and less likely to trust banks and retirement investments like 401(k)s that rely on the success of the stock market.

While many millennials’ parents lost homes and jobs during and after the financial crisis, millennials themselves were often not able to achieve these important milestones to begin with. Saddled with record-high student debt levels and graduating into an unfriendly economy, millennials experienced reduced earnings compared to previous generations that would have a lasting impact on their overall financial success.

Millennial Spending Habits

The 2008 financial crisis also had a big impact on millennials’ spending habits. Millennials are more likely to be saddled with student loans and credit card debt, and less likely to own a home. When compared with previous generations, millennials still lag behind on major financial milestones, even a decade after the recession.

Millennials vs. Baby Boomers

Millennials have less accumulated wealth than baby boomers did at the same age, and have a more negative outlook on their economic future. While baby boomers matured and aged during a time of unprecedented economic growth, millennials came of age during a time when their financial future was much less certain. According to the Bureau of Labor Statistics (BLS), millenials are more highly educated than previous generations, but they face the burden of massive student loan debt. In general, millenials spend less on entertainment and luxury goods than baby boomers, and have the lowest average income of the generations currently in the workforce.

Millennials vs. Gen X

While millennials and Gen X share many similarities in terms of their distrust of the financial industry, Gen X is slightly better off financially, having matured into a booming economy in the years before the crash. Similarly, Gen X has been able to rebound from the Great Recession to a greater degree than other generations. When comparing generations, the BLS notes that expenditure levels peak for Gen X before declining for millennials.

Millennials in the Workforce

According to the Pew Research Center, the Great Recession left the millennial generation underemployed. Millennials, many of whom graduated from high school or college in the midst of the financial crisis, struggled to find well-paying jobs commensurate with their education and experience.

Millennials vs. Baby Boomers

While many baby boomers were able to achieve well-paying jobs to support their families with only a high school diploma, this isn’t the case with millennials. Due to increased degree inflation, many entry-level jobs require at least a bachelor’s degree. When compared with baby boomers, millennials also feel more vulnerable in terms of job security and long-term success. According to Pew, over two-thirds of millennial Americans report that it’s harder to find a job, save for the future, pay for college, or buy a home than their parents’ generation.

Millennials vs. Gen X

Millennials and Gen X share some similarities when it comes to the job market, including an increased emphasis on jobs that are personally meaningful, as well as a willingness to switch jobs to advance in their career. Unlike millennials, however, Gen X was able to establish a professional and financial foothold before the Great Recession, and has been able to bounce back in terms of both their career prospects and savings since the financial crisis.

Millennial Investment

Unlike previous generations, millennials are much warier of investing their money in the stock market. Because millennials reached maturity and entered the workforce during or after the financial crisis, they have a much more negative view of investing, the stock market, and the financial sector as a whole.

Millennials vs. Baby Boomers

Because baby boomers grew up during a time of unprecedented financial growth, they are much more likely to trust investments in the stock market. In contrast, millennials are much more suspicious of investments. In general, millennials have more modest financial goals, with many focused simply on how to make ends meet from month to month.

Millennials vs. Gen X

While millennials and Gen X share some similarities in terms of their investments, millennials are much more likely to “play it safe” when it comes to investing in the stock market. While Gen X is also skeptical of the financial industry, they are much more focused on putting their savings into retirement funds and investments to draw on in old age.

Unlike previous generations, millennials matured into a challenging economic time period that has drastically shaped their financial future. While the country may have moved on from the Great Recession, the 2008 financial crisis has had a lasting impact on the lives of many millennials.

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