Renting may present fewer hassles and commitments than buying, but it still costs millennials a huge chunk of their paycheck.
According to a new study by RentCafe, millennials shell out an average of $92,600 in total rent payments by the time they turn 30.
Citing U.S. Census data on total income and total rent paid for an eight-year period, the study found that millennials spend as much as 45% of their income on rent between the ages of 22 and 30.
That’s significantly more than what Baby Boomers (36%) and Gen Xers (41%) spent on rent relative to their income when they were the same age. (Interestingly, all three generations violate the decades-old rule-of-thumb that you shouldn’t spend more than 30% of your income on housing — perhaps a sign that the “rule” could benefit from a caveat or two.)
One potential explanation for millennials’ high rent burden is that they’re less likely to buy homes than previous generations.
Millennials grapple with financial factors that didn’t affect previous generations, including coming of age in a recession and higher student loan debt. This makes it difficult to afford a down payment for a mortgage.
Add that to millennials’ preference for living in cities — where rent and amenities tend to be more expensive — and you have the recipe for a huge rent burden.
What does this mean for you?
If you’re a millennial paying rent every month, you probably don’t need a study to understand the effects on your bank account.
Still, it’s worth examining the overall impact that high rent costs can have on a young person’s life.
The more income that rent takes up, the less money left over for saving, investing and paying off debt. That could translate to higher interest costs on your credit cards and student loans — not to mention a longer timeline for retirement.
Even today, we’re seeing the effects of a generation ill-prepared for retirement. As the Chicago Tribune reports, many Baby Boomers have scant retirement savings and plan to work long past the traditional retirement age of 65.
Why should you care?
Millennial or not, all renters could feel the pinch of rising rates in rents.
In fact, rising rents have zero regard for age or generation. Millennials may be paying more in rent over the course of their lifetimes than their generational forebears, but we’re also seeing a rise in the number intergenerational households. This trend began during the Great Recession, when adult children moved back in with their parents to make ends meet, and it doesn’t seem to be slowing down.
If rents continue to rise, more Baby Boomers may find themselves supporting their adult children. And that cycle could continue on into the next generation, as millennials struggle to reach financial milestones that help set their children up for future success.
The bottom line? Everyone may be affected by increased rent costs — though right now millennials are certainly feeling the brunt of it.
What can you do?
Perhaps the best course of action is to assess your current living situation. You may not be able to find cheaper housing, but you can take a few steps to minimize costs and set yourself up for a better future.
- Examine your spending. If you live in a city — as many millennials do — you may spend more than you can afford on “luxuries,” such as entertainment, dining out and Uber rides. Take an honest look at your budget and see what you might be able to cut out.
- Consider housing alternatives. Though this isn’t possible for everyone, some people may be able to save on rent by looking for housing in a more affordable neighborhood, finding a roommate (or two), or even moving in with their parents for a short period of time.
- Develop a plan for paying off debt. Paying off debt can seem like a huge task, but it’s easier when you break it down. Start by assessing the amount you owe, then dive into the details and make a repayment plan.
- Save in smaller ways. Saving and investing doesn’t have to feel like a burden. Apps such as Acorns let you invest your spare change by rounding up your purchases to the nearest dollar and depositing the difference into an investment account, all for a small fee.