Flickr / Aspen Snowmass Explanations of the Millennial generation have passed the point of cliché and descended into threadbare stereotype. We’ve all heard the stories of the rising generation’s materialism, fickle attitude toward responsibility and robust sense of entitlement. Aside from making good fodder for a Baby Boomer gripe-fest, this way of seeing Millennials fails to explain the unique challenges facing this generation.

Worse yet, resting on these tropes makes us think of them as one-dimensional and keeps us from seeing what’s really going on.

Within the Millennial generation, a deep divide has emerged between those with prime credit scores (a FICO score of over 700) and those with non-prime scores (people with scores below 700, sometimes described as subprime).

By all indicators, the prime Millennial is well-positioned to make financial progress: they have reliable jobs, they are establishing families at a comfortable pace, and they have access to the best financial services and products.

On the other hand, the financial prospects for non-prime Millennials face several headwinds that make it difficult for them to see their way to the goals of financial security. What’s more, the issues are largely out of their control.

Saving

Americans have notoriously low savings rates. In fact, according to a recent report by the Federal Reserve Board, 46 percent of Americans cannot cover a $400 emergency with their savings. Economists have tried to find the reason in our consumer culture, corporatized retirement plans, or tax structure. On a macro level, those all have a role to play. When we look at the differences in savings rates among Millennials, we can see that the issue does not affect all groups equally. For reasons that might surprise you, non-prime Millennials are 58 percent less likely than their prime counterparts to put aside money for savings.

This low savings rate spills over into the rest of non-prime Millennials’ finances in dramatic ways. Thirteen percent of them regularly overdraft their savings or checking accounts. Even more shockingly, 41 percent of them say they run out of money every other month or more often. Money managers have told us for years that the key to long-term financial security is starting early and being consistent in putting aside money. This simply is not an easy task for the rising generation.

Why? Is it simply because they don't think long-term?

Personal Finance Management

Millennials are a confident bunch. Nearly half of them still express confidence that they can meet their long-term goals of being financially secure. They are equally undaunted by the evolving requirements of the economy. They believe they will have the skills needed for the jobs that they will want in 10 years. This is hardly a group of people who feel like they stand outside looking in.

In some ways, however, non-prime Millennials think very differently from their prime counterparts.

Non-prime Millennials are 45 percent less likely to maintain a monthly budget. This might suggest that they are playing fast and loose with their personal finances. Or, there may be another explanation for this lack of planning.

One clue can be found in the fact that 87 percent use their debit card to pay for day-to-day expenses. Prime consumers lubricate their daily financial lives with the use of credit cards. This allows them to spend what they need without worrying if they have the money in the account to cover the expense. This is not true of non-prime Millennials.

Non-prime Millennials are cash accountants. They largely don’t have access to credit, so they live from one day to the next knowing exactly what's in their bank accounts. Day by day, they must track scheduled bills and paydays to determine if bank account balances can cover the cost of their groceries.

And indeed, the primary means in which they've learned to manage their finances has been “trial and error.” This may not be an efficient way of understanding the nuances of our complicated financial system, but it generates effective day-to-day strategies for getting by.

This day-to-day financial existence makes more sense when you realize that 74 percent of non-prime Millennials have jobs that pay an hourly rate, which can impact income predictability, safety-net benefits, and retirement funding. Also, they are the most likely generation to have unstable employment situations. They change jobs or suffer layoffs more often.

And then there’s the scourge of the unexpected expense.

Unexpected Expenses

Non-prime Millennials are more exposed to the challenges of covering an unexpected expense. They are 55 percent less likely to feel confident that they could come up with $1,200 to cover an unexpected bill. Only one-third of them express any confidence at all; and, another third are “not at all confident.”

_Dinkel_/Flickr Prime Millennials are most likely to say they would put that expense on a credit card. Only 12 percent of non-prime Millennials say they could turn to that option. Non-prime Millennials are savvy enough to know that some of their best options are “setting up a payment plan” or borrowing money from family and friends, but all too often these options are not available either. More than 1 in 10 fail to identify any way that they could come up with $1,200 in an emergency.

Uncertain income and unexpected expenses comprise the double whammy that makes it difficult for non-prime Millennials to proactively manage their finances and make financial progress. When your income is uncertain, maintaining a monthly budget can be frustrating. Add unexpected expenses and maintaining a monthly budget can seem futile.

What should be done?

Despite the commonly-held belief that American Millennials have no one to blame but themselves for any financial trouble they face, both data and anecdotal evidence show that the truth—as usual—is more complicated than that. Millennials have a lot going for them, not the least of which is an optimism for the future. But, they also face an economic environment different than previous generations. Instead of relying on stereotypes to inform our opinions, we need to seek understanding from data-fueled insights. Those insights can help Millennials better track their own financial behavior as well as help businesses better identify products and services to meet the rising generation’s unique needs.

Banks and financial services companies have to do a better job of understanding the unique needs of the rising generation. Innovative solutions will only come when companies anticipate customer behavior, challenges, and attitudes. Exploring how those needs differ based on Millennials’ credit situation will be key to finding credit solutions that solve those unique problems.

If you’re a Millennial who has a non-prime credit score—or is at risk of losing your prime status—it might be helpful to know that you aren’t alone. Many of your fellow generationalists share your situation. Recognize that unpredictable income and unexpected expenses can endanger your finances more than others. Find ways to hedge against disaster by saving money through temporary austerity, lining up informal credit agreements with family or friends, and protecting what credit you do have. Beyond that, do a little homework and learn what you need to do to grow your credit score.

Jonathan Walker is the Executive Director of Elevate’s Center for the New Middle Class. The Center researches, advocates, and educates to promote open dialogue about the challenges that face credit-constrained Americans. The Center’s latest report is “The State of the Non-prime Millennial.”