Millennials, those born between 1981 and 1996, are now the largest segment of the workforce. We make up about 50 percent of national employment and are projected to dominate the workforce at 75 percent by 2030, according to the US Bureau of Labor Statistics. Couple this reality with the information age we live in and you have the most studied generation in history. The availability of such data particularly helps point out millennials’ decisions around money, including some mistakes that can ripple across the country like a tidal wave. Assuming protection first, group and personal insurances are adequate, let’s take a look at the top 5 culprits:
- Failure to budget. Cash is king and overlooking liquidity is a surefire way to metastasize the mistakes below. Failing to pay yourself first and build an adequate emergency fund leaves you in a reactionary position as opposed to financial control. As a CFP® to hundreds of millennials, I can tell you it’s typically a matter of laziness to plan or an error in waiting for the “perfect time” to start stashing money away. Six month’s expenses is a good starting point.
- Credit cards gone wild. These pieces of plastic are the ultimate double-edged sword. Its use is critical towards developing credit history and raising your FICO score. However, credit cards with an average interest rate of 19.24%, according to WalletHub, need to be zeroed out every month. Runaway credit card balances can take over a budget and delay a millennial’s financial goals, making the next debt even more insurmountable.
- Student loan debt. According to the NY Fed’s Quarterly Report on Household Debt and Credit, there is over $1.5 trillion of outstanding student loans, trailing only mortgages in consumer debt. The main difference here being that mortgages are a secured debt, it’s directly collateralized by the house you live in, whereas student loans are an unsecured debt, repayments rely solely on your personal work ethic and career ambition. Millennials have already made the right or wrong choice on where and why they went to college. Now we must quickly come up with a game plan, taking advantage of any forgiveness options or refinancing to lower interest rates with manageable repayment terms that don’t rock your budget, setting you back another 5 years. Any graduate degrees should be primarily considered via employer reimbursement, there’s enough companies out there willing to foot the bill.
- House Rich / Cash Poor When I do a financial literacy workshop, I poll the audience of their first goals after graduating college. Without question, buying a house is the most popular. Building a rainy-day fund? Boring. Eliminating credit card debt? We’ll get there. Student Loans? I don’t think I have to start repaying those yet. This lack of hierarchy can force a millennial into their dream condo, with no furniture and repairs galore. Taking care of incidentals, or necessities in this case, costs money, usually credit card money, throwing Mr. and Mrs. Young Professional onto the financial treadmill at full speed.
Meeting The Jones’ They’ve run the block for generations before our time. Most irrational, or irresponsible, decisions regarding Mistakes 1-4 are prompted by our human desires to keep up. Avoiding vanity can help millennials launch a successful and patient, maybe a bit boring, financial plan.
Avoiding these common errors can help millennials make sound decisions that will enable all the wealth building steps (retirement planning, investing, etc.) that most financial gurus prefer to discuss. Please tune into “The Kuderna Podcast” on any podcast sites or http://thekudernapodcast.libsyn.com/ or pick up a copy of “Millennial Millionaire- A Guide to Become a Millionaire by 30” for more insight.