The Truth Behind Gen Y's Financial Optimism

By Kimberly Palmer

On the surface, Gen Y, those ebullient 20-somethings smiling into their phones as they snap selfies, can seem glowingly optimistic about their futures. Despite the major recession they've already faced (and seen their parents struggle with), they often tell researchers that they think they will eventually find their footing and establish a standard of living at least as good as the one they enjoyed growing up with their parents.

The real stories behind those happy faces, though, tells a far more nuanced tale and shows just how much hardship many Gen Yers have faced. A new longitudinal study from the University of Arizona's Take Charge America Institute, sponsored by the National Endowment for Financial Education and the Citi Foundation, gives a glimpse of the struggle -- and resilience -- of this generation.

%VIRTUAL-WSSCourseInline-899%"What I find most interesting about this group is how very adaptable there are," says Joyce Serido, research professor at the University of Arizona and principal investigator for the report. She says she watched many millennials grapple with the recession and job market, which forced many of them to rethink their plans and definition of self-sufficiency. About half of them are still receiving financial help from their parents, she notes.

The researchers first interviewed the students when they started at the University of Arizona in the fall of 2007 and then continued to follow up with them through last year. (The researchers plan to follow up with them as they get older and eventually face midlife.) The majority of the more than 2,000 survey participants (61 percent) started freshmen year with relatively responsible financial behaviors that then hit the skids by their senior year in 2010, which coincided with the aftermath of the recession. By 2013, when they were two years out of college, they had returned to practicing healthier financial behaviors, such as paying bills on time and saving money.

As of the last interview, two years past graduation, 49 percent said they held full-time jobs, 20 percent said they worked part time or were self-employed, 18 percent attended graduate school and 6 percent said they were unemployed.

Speaking on a webcast timed to the survey's release last week,​ survey participant and recent University of Arizona graduate Maria Calendo​, who now works as an account services manager for an insurance company, says seeing other people's money go south during the recession showed her the worst that could happen. She also watched as her father, who works in construction, struggle with his income just as her student loan bills were going up. "I worry about job security a lot. Even when I get offers from other companies, I check to see if they've laid other people off," she says.

Another participant and recent graduate, Danielle Zion​, who​ works for an advertising agency in Boston, also noted that life after graduation contained some unexpected challenges. "It was harder to find jobs than I thought," she says. "It took some friends three to six months."

Kathryn Robison​, a survey participant who is a full-time graduate student and also caregiver to her ailing grandmother, says watching her grandmother's experience has made her more aware of her own potential future expenses. "I see the financial strain of where my grandmother will go for care and it makes me think about the future. ... I worry about the way off future. What will I do for long-term care insurance?" she asks.

Alexandra Freedman Pierce​, a teacher who participated in the research study​, says she doesn't think she can count on social security being available for her when she retires. She also had the challenge of helping to support her family when her father died while she was in college. "It ended up being harder than I thought to find a job. I worked part time at Crate and Barrel and served part time at the Cheesecake Factory and thought, 'I have a bachelor's degree, I'm smart, why can't I find a job?' " She says potential employers kept telling her other applicants were more qualified than her. "It was definitely a crash course in being a grown up, but I passed," she says, adding that she now has savings accounts.

%VIRTUAL-article-sponsoredlinks%The survey found that the most successful Gen Yers tended to have parents with higher expectations and stronger financial education backgrounds than their peers who struggled more with money. The high-functioning group also tended to have taken multiple financial literacy classes throughout their high school careers as well as taught themselves more about money through online resources.​ "The young people who are taking a proactive approach to managing their money are light years ahead of those who are disinterested," Serido says.

The groups that struggled more with their finances had less education and also less confidence, she notes. "They don't think they know anything. They also perceive that they don't have control over how money works. That's what education does. ...​ Just becoming informed gives you a sense of empowerment and ability," she says.

Serido compares today's Gen Yers to their great-grandparents, who grew up in the shadow of the Great Depression, and says there are similarities. "It's a sadder but wiser mentality. They're very self-aware; they've been through the mill. Sometimes when you survive something that's really crummy, you feel like you can take on anything."

Kimberly Palmer is a senior editor for U.S. News Money. She is the author of the new book, "The Economy of You." You can follow her on Twitter @alphaconsumer, circle her on Google Plus or email her at kpalmer@usnews.com.