Advice From The Experts: Managing Your Finances As A Millennial
BY: Forbes Finance Council Expert Panel
February 6, 2017
Every generation faces a different challenge when it comes to financial planning. Millennials in particular are faced with higher student loan debts due to rising tuition costs and an average higher cost of living than previous generations. One study showed that 34% of 24-to-35-year-olds have less than $1,000 in savings and only 15% have $10,000 or more.
Even if you haven’t started thinking about retirement, it’s never too late to plan out your financial future. Below, three financial experts from Forbes Financial Council weigh in on what they see the millennial generation experiencing at retirement age and how they would advise millennials to best position themselves now.
Sharon Bloodworth CFP®, President at Whiteoaks Wealth Advisors, Inc.
You are an incredible generation. You have already experienced seeing your own come back in coffins from wars in far-flung places. World business is being disrupted by the software innovation of your peers. You are a kind generation with a strong interest in preserving the environment, and you lean toward companies that share profits with those that need a helping hand.
I can help by sharing my experience and addressing those things that you are not yet thinking of. The baby boomer generation is not prepared for retirement and will rely on tax money paid in by Generation X and millennials to support their healthcare and social security income. With expected longevity, this is going to be an expensive undertaking. It will result in less money being passed between generations because much of the boomer wealth will be used for end-of-life care. So your future financial stability and flexibility is up to you.
I advise and invest for almost exclusively millionaires and multimillionaires. I have a front seat to the behaviors that build and destroy wealth. There are three routes to wealth: (1) You need to live well below your means, (2) you need equity in a company, or (3) you need to get lucky with an inheritance.
Only one of these do you have most control of — and that is your spending. Most Americans live well above their means. You rush to buy something, but then you pay by credit. Assuming you only pay off the minimum required (if that), you are probably paying about 35% more than the cost of the purchase, assuming a 17% APR type of card. If people saw the price tag of what items cost with poor credit card habits, I think they would walk on by many purchases. You need to save 10-20% of your income now and invest it for the future.
In our parents’ and grandparents’ formative years, if you were ill you went to the doctor or if you needed investment advice you went to a bank or a financial advisor. Today your generation is blinded by information and encouragement to self-advise. Seek out the purest sources of information, and seek professional guidance for the most important financial decisions in your life.
Stacy Francis CFP®, CDFA™, CES™, President and CEO at Francis Financial
At a young age, many millennials are already in a big financial hole. The average American under 35 holds 182% more college loans than students graduating in 1995 did, according to Federal Reserve data. They graduated into a lukewarm job market, and many can be found sleeping in the same bedroom that they lived in during their childhood.
Student loan debt has slowed the progress of thousands of millennials who are trying to get a foothold in the job market and start saving for retirement. The debt burden is so great that some economists question how much bang students are getting for their academic buck.
Large debt obligations have the domino effect of reducing the dollars available to invest. According to the Pew Research Center and communicate in an article by USA Today, “The median net worth of a household headed by someone younger than 35 in 1984 was $12,132 in today’s dollars. Now, it’s $6,815.”
That’s a 44% drop in the real value of savings, real estate, stocks, bonds, cars and other assets.
The median value of 401(k) plans today for households headed by someone 25-34 is just $8,363, according to the latest data from Vanguard.
Start saving for retirement when you land your first job. Getting into the habit of saving now can make you a saver for life. By being disciplined about setting money aside, you can greatly increase the amount you have available in retirement.
You can also save money for retirement by watching how you spend your money now. Use apps such as Mint.com or Goodbudget to track your expenses and set budgets. Take advantage of discounts and freebies; shop around for the best value for money. By taking steps to cut down on your expenses, you will have more to save and ultimately more for your future.
Casey Weade CFP®, RICP®, President at Howard Bailey Financial
When it comes to the financial health of millenials today, it seems there is a view that this generation is doomed due to the privileges they have been granted that other generations were not, landing us (as I am a millennial myself) the title the “me generation.”
I think it’s time we drop the nonsense. While this generation may have its feelings of entitlement, we can find the same instances in nearly every other generation. Is this generation doomed financially? Not any more than the “greatest generation” was after the Great Depression, I would argue. Your financial success as an individual has nothing to do with the generation you are born into, but instead how you are raised and the experiences you have along the way.
So what will the financial health of millennials be when they come to retirement age? It will be mixed as it always has been. Some will be billionaires; some will drown in poverty. That’s up to them as individuals to decide.
Now just as every generation has its own unique challenges this one is no different. The instability of the Social Security Administration will be a particularly unique challenge to this generation, as underfunding certainly means major changes, which will mean one of two things: either a reduction in benefits or an increase in taxes — most likely a combination of the two. As this generation begins saving, sky-high stock market valuations and all time low-interest rates will present challenges to the accumulation of wealth. Not to mention the skyrocketing cost of education and healthcare, which will dampen income opportunity and limit the availability of excess savings. Despite the negative impact these challenges will have on this generation’s ability to succeed, those with the drive to succeed will do just that.
Given my unique seat in the financial world, I have had the opportunity to meet and interview hundreds of One-percenters over the years. If you would like to fall into that category yourself, here are some common financial practices you should adopt:
- Max out your retirement accounts. Specifically, millennials should place the most emphasis on their Roth accounts, as a result of the potential of higher taxes in the future and the time on their side.
- Avoid bad debt, such as credit cards and car loans, at all costs.
- Avoid taking too much risk. Despite what you might hear, the millionaire next door probably didn’t risk his life savings to get where he or she is; instead he or she protected it without fail.
- Don’t pay more in taxes than you owe. It’s not patriotic. Put an emphasis on tax reduction strategies, e.g., deductions, credits, retirement contributions, etc.
- Seek advice and learn from others. As said from Proverbs 15:22, “Without consultation plans are frustrated, but with many counselors they succeed.”