Small copper coins are threatening millennials’ financial futures

E pluribus enough already
E pluribus enough already
We may earn a commission from links on this page.

A recent BuzzFeed poll asked, “millennials, what should we kill next?” There were over 60,000 respondents and 50 categories, and in second place, winning 13% of votes: pennies.

In multiple ways, millennials’ desire to kill the penny reflects their general approach to finances. The penny is wasteful: The 1¢ coin costs 1.7¢ to produce, whereas millennials have hardened into thrifty, thoughtful investors post-Recession. The penny is physical, whereas millennials prefer to pay with cards or mobile apps; in fact, seven in 10 millennials think cash will disappear in the next generation.

The economy is overdue for a millennial-led upgrade, just as the penny is overdue for de-circulation. Lincoln won’t mind. He’s still on the $5 bill.

Penny Pinched

The penny’s continued existence is proof for millennials that America’s financial system is woefully out of touch. Millennials are the most educated generation ever, but also stuck with substantial student debts and earn about 20% less than their parents did at the same age. Beginning adult life during a recession, as many millennials did, has made millennials especially frugal in ways big and small—and sometimes self-defeating.

There are countless systemic issues holding back millennials financially, such as rising healthcare costs and unregulated gig labor arrangements. Meanwhile, 83% of Millennials say they’re worried about Social Security and other government safety nets becoming considerably depleted by the time they reach retirement age.

In a county where people throw $62 million worth of coins in the garbage every year, these serious shortcomings should come as no surprise. Of course, killing pennies won’t put a dent in replenishing Social Security’s trillion dollar annual price tag. But it’s a symbol of what millennials work tirelessly for: a world that reflects their values.

Financially squeezed millennials are delaying major milestones, such as marriage or buying a home—two events that help people accumulate wealth. Although 65% of millennials say they would like to get married one day, 29% blame finances for the delay.

The private sector, being significantly more agile than the government, is well-positioned to pick up the slack for helping millennials. In light of millennials’ limited fallbacks and meager assets, employer-sponsored financial wellness programs are increasingly critical for relieving financial stress on young employees. By offering not just long-term investment opportunities, but also financial literacy tools and peripheral benefits (e.g., savings plans, 401(k) matching), financial wellness programs make millennials more engaged, more productive, and more confident in their financial futures.

Screen Saver

While we continue to mint pennies, 94% of millennials use online banking, and 60% would choose to bank and transact entirely online, compared to 32% of boomers. Millennials also love automated processes that eliminate hassles—apps for saving and making purchases, of course, but also 401(k) automatic enrollment when offered, with automatic increases.

Likewise, 68% of millennials think investments in general will become automated, based on personal data and preferences and artificial intelligence. Already, 11% have used a robo-adviser. (We’re at a point in history where AI financial advisors and pennies exist simultaneously—let that sink in.) Millennials are open to using alternative financial services, especially when offered by tech brands they trust. However, 63% of millennials expect to be victim of privacy and security breaches. Thus, another challenge is regulation: Small fintech companies are not regulated the same way banks are, and it can be difficult for a customer to know whether a startup financial app is legitimate or a scam.

Employers have an opportunity here, too. Millennials and workers in general trust advice and services from their employers. Plus, in an era of constant digital distraction, employers have a precious commodity: their employees’ attention.

Penny Wise, Pound Foolish

In the absence of home equity, getting more millennials to invest in financial products is key. While millennials aren’t literally hoarding pennies, they’re almost doing the same thing—the majority of millennials tend to prefer to hold cash over active investments. Millennials saw their parents take a hit during the 2008 stock market crash and took away lessons of extreme caution toward stocks; 77% expect another recession in their lifetimes, even worse than 2008. A survey found millennials slightly ahead of people who grew up in the Great Depression, 30% to 28%, in thinking cash is king. Likewise, another survey found that while 71% of gen xers view 401(k)s as their safest source of future wealth, 66% of millennials prioritize their savings accounts.

And yet, as a recent Quartz article points out, since 2009, interest rates for savings accounts have languished near zero, whereas the S&P 500 index has nearly doubled. That means millennials are missing out on returns.

Why do millennials, who are so savvy about financial technology apps, choose the savings method that earns about the same as stuffing their money under the mattress? It could be the burden of picking from such a wealth of choices. It could be loss aversion: Research shows that a potential gain has to be twice as big as a possible loss for us to take a risk. Millennials can overcome unreasonable loss aversion by getting perspective and advice. They can make confident choices when our options have already been curated by experts. In fact, millennials are willing to invest when they get guidance and a defined menu of investment plans. Other research shows that millennials enthusiastically adopt 401(k)s when offered by employers.

They say a penny saved is a penny earned. But maybe, instead of just saving, it’s time millennials get their hard-earned money to work for them.

And while we’re at it, let’s not forget that a 5¢ nickel costs 8¢ to mint.

Explore what life will be like for 80-year-old millennials in our landmark study

This article was produced on behalf of Prudential by Quartz Creative and not by the Quartz editorial staff.