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According to CNBC, despite millennials having a bad rap for finances, a recent Bank of America Merrill Lynch survey shows millennials may have more-prudent plans for their tax-cut savings compared to Gen Xers.
Instead of spending the extra cash they might be getting after February’s tax cuts, the survey reports 17% of millennials surveyed are planning to use it to pay down debt, 8% will invest the money, and 20% are going to save it. In contrast, only 8% said that they plan on using the money for day-to-day spending.
Compare that to Gen Xers surveyed, who reported being 3% more likely than millennials to spend their tax cut on day-to-day purchases, 2% less likely to save their tax-cut money and 2% less likely to use it to pay down debt.
What does this actually mean?
U.S. Treasury Secretary Steven T. Mnuchin estimated that about 90% of all American workers would see a bump in take-home pay after the changes to the tax code went into effect in February. The recent Bank of America Merrill Lynch report suggests millennials are more likely than their Gen X counterparts to save or invest the additional money.
This may be because millennials tend to have better money habits in general. A 2017 study by Bank of America indicates that even before the tax cuts, millennials were as good, if not better, at saving money than older generations. The study shows 57% of millennials surveyed had a savings goal and 54% were budgeting their money. Even better, 47% of millennials had $15,000 or more in savings.
This is an interesting contrast, particularly when thinking about some of the financial burdens millennials face. For example, a study by RentCafe citing U.S. Census data uncovered that millennials pay a whopping $92,600, on average, in total rent payments by the time they hit 30.
Why should you care?
For many, these additional tax savings have been substantial. According to NPR, with information provided by the Tax Policy Center, the average American worker making $75,000 to $100,000 a year would see an average boost of $1,310 annually. If you’re seeing similar gains, consider joining the millennials saving, investing and using that money to pay down debt.
In terms of the economy at large, Wall Street may have mixed feelings on millennials choosing to save their tax cuts.
On one hand, millennials choosing to save that money may decrease Wall Street’s hope for a consumer spending boom. The Street notes that Best Buy and Kohl’s stock prices have been up this year on the expectation of consumers spending their increased take-home pay. So news of increased saving by millennials may very well be a disappointment to these, and similar, brands.
However, as noted earlier, 8% of millennials are planning on investing their extra take-home pay. This can put more money into the stock market and may help fuel the uptick we’ve seen there over the past year.
What can you do?
Wondering what to do with your extra tax-cut cash and tax refund this year? Here are a few ways to help maximize your increased take-home pay in 2018.
- Pay down high-interest debt. First thing’s first: think about paying down your high-interest debt. This can include things like personal loans, credit cards and payday loans. Paying down these debts can save you money on interest in the long run — probably more so than if you put your money into a savings account and kept paying the minimum payments on your high-interest card.
- Create an emergency fund. Consider starting an emergency fund that’s large enough to sustain you and your family for 3–6 months if you were to lose your job or hit a significant financial roadblock. This can give you peace of mind and help ensure financial stability during difficult times. Consider storing these funds in a certificate of deposit or other FDIC-backed, financial tool — with the reassurance of knowing the standard FDIC-insured amount is $250,000 per person, per bank, per ownership category.
- Consider investing. There are a number of high and low-risk ways to invest your money. While the stock market may not be for everyone, do your research to decide if a mutual fund, money market account, or even a smart-investment app like Wealthfront® or Betterment®, could be the right investment tool for you.