Millennial Entrepreneurs Are Having a Hard Time Getting Started
It is likely that Millennials will make up around 75 million people in the American workforce by 2025. The top of the Millennial cohort, which is defined by being born between 1981 and 1997, are set to turn 34 this year. According to the Kauffman Foundation, a nonprofit that studies entrepreneurship, the oldest Millennials are aging into the historically perfect age for launching themselves into entrepreneurship.
However, something is significantly slowing Millennials down when it comes to being financially stable enough to start a company of their own. According to the Kauffman Foundation’s 2015 state of entrepreneurship report, “Saddled with student loan debt, millennials can’t afford to be entrepreneurs.”
The share of start-ups launched by young people has seriously dropped off in recent years. For the 20-34 age group, youth entrepreneurship peaked in 1996, when 35 percent of start-ups were young people’s. This percentage has recently fallen fallen to 23 percent in 2013. Also, according to researchers at the Kauffman Foundation, young Americans launched 40,000 fewer new businesses per month in 2013 compared to 1996.
However, when it comes to looking at young people’s ability to kickstart their own businesses, there have been some contradictory findings. Certain parts of the country, like Silicon Valley, are particularly welcoming for young entrepreneurs, especially those in technology.
Also, a report from Babson College found that the share of young people starting businesses has actually gone up in the past few years. Last year, 18 percent of young Americans started a business, up from 15 percent in 2013. Babson researchers also reported that young people are starting their own companies while still holding down other employment, which may account for some of the discrepancies in this area of research.
The Kauffman Foundation connects the decline in youth entrepreneurship with the rise in student debt The average debt per borrower has increased from $18,233 in 2007 to $27,689 in 2014. Kauffman also points to slower asset accumulation, which is likely often connected to holding student debt.
While working to pay back their nearly $30,000 in student debt, it’s no wonder Millennials are having a harder time saving: in 2015, adults under 35 had a savings rate of negative 2 percent—which means either burning through their savings, or going into debt.
Kauffman Foundation researchers point out that the way in which student debt affects entrepreneurship play out is “complicated.” According to Dane Strangler, vice president of research and policy at the Kauffman Foundation, “On the one hand, it makes sense that if you are coming out of college or grad school with a load of debt, starting a company is not among your most viable priorities.”
However, Strangler pointed out that those who study entrepreneurship do not expect 22-year-olds to start businesses. “They do get to more entrepreneurial-inclined ages [late 30s and early 40s] they will have better control of their finances.” At least, that’s the hope.
Sandy Baum, a senior fellow at Urban Institute brings up that Millennials want to start companies, but many can’t feasibly do it with debt. Looking at a high percentage of people, it may be that there are other factors at play, as well. “On an individual basis, [student loans hindering entrepreneurship] is probably true. But would a high percentage of people, who have student debt, not become entrepreneurs because of that? That seems unlikely.”
Even if student debt isn’t the only factor at play leading to decreased entrepreneurship, it is still very much complicating Millennials’ finances, and forcing tough decisions. As of now, 41 million Americans have student loan debt, totaling $1.3 trillion and counting. So far, borrowers are having to put off milestones of adulthood like moving out on their own, or buying houses or cars.
In an era when so many graduates have some kind of debt, it’s not surprising that launching a start-up may be tougher today than in years past.
Annie Wood is a Student Debt Reporter at Generation Progress. Follow her on Twitter: @anniewood28.
Posted on 18 February 2015
|Generation Progress is a national organization that works with and for young people to promote progressive solutions to key political and social challenges. Generation Progress engages a diverse group of young people nationwide, inspires them to embrace progressive values, provides them with essential trainings, and helps them to make their voices heard—and to push policy…