Millennials have a reputation for ditching their nine-to-fives for entrepreneurship. But in terms of young people actually going out to start their own businesses, this perception is very different from reality.
Why? According to a study by the Small Business Administration, in 2014, less than 2% of millennials were self-employed. This compares with 7.6% of Generation X and 8.3% of Baby Boomers. Another study, conducted by the Kaufman Foundation, found that young people (age 20-34) accounted for only 22.7% of entrepreneurs in 2013, compared to 34.8% in 1996. Further, John Lettieri, the cofounder of the Economic Innovation Group, stated in a U.S. Senate Committee Hearing on Small Business and Entrepreneurship that millennials are likely going to be the “least entrepreneurial generation in recent history”.
The reality is that many millennials are choosing corporate jobs over entrepreneurship. More so than previous generations. A combination of factors is driving this shift, including debt, lack of savings, job security, and risk aversion.
Millennials are opting for careers that can accommodate their growing debt. According to Student Loan Hero, the average student will graduate with $37,172 in student loan debt in 2016 (up 6% from last year). As of 2012, 71% of students graduated with some amount of student loan debt. The Pew Research Center reported that millennials are more burdened by financial hardships than previous generations.
With more debt than their predecessors, millennials are focusing on paying off their student loans, which means making a steady income and minimizing expenses. As an entrepreneur, paychecks aren’t always steady and starting the business itself requires, at a minimum, an initial investment. With student loan debt on the rise, millennials are pursuing corporate careers because of the pressure they feel to pay down their student loan debt.
2. Lack of savings
Millennials are also choosing office jobs because they lack the savings to support entrepreneurship. While millennials may be saving money in retirement funds, more than half of millennials have less than $1,000 in liquid savings, according to Market Watch.
Entrepreneurship requires some level of savings (and the more the better) and inherent in starting a business is the need for liquid savings. Not only do entrepreneurs need cash to live on until the business makes enough of a profit, but they also need money to start their businesses. Without adequate savings to live on or to use to fund a new business, millennials don’t have the cash to support their entrepreneurial dreams.
3. Job security
Millennials value job security more than previous generations, according to the Pew Research Center. In a 2013 study, 40% of millennials reportedly valued job security as “extremely important” compared to a lower 31% of Baby Boomers.
If millennials have higher student loan debt and lack cash savings, it makes sense that they would prioritize job security more than their predecessors. Millennials need a steady job to make their debt payments and meet their standard of living expectations.
4. Risk aversion
According to an Economic Innovation Group study, millennials are risk averse compared to previous generations. Millennials perceive corporate jobs as being less risky than entrepreneurship.
With various financial pressures and a need for job security, millennials are feeling more risk averse than ever before. Without the capacity or tolerance for taking risk, millennials are not pursuing entrepreneurship which inherently is a risky business.
Millennials can’t afford to be entrepreneurs
Millennials have insufficient financial means to pursue entrepreneurship compared to prior generations. Add to this, the fact that millennials entered the workforce during (or shortly after) The Great Recession, and it is not hard to see why millennials are financially strapped and not pursuing entrepreneurship like their predecessors.