Tag: Millennials

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College Students and Recent Grads, Featured, Investing, News, Retirement

Where the Wealthiest Millennials Stash Their Money

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There’s been much talk about millennials being fearful of the stock market. They did, after all, live through the financial crisis, and many are shouldering record levels of student loan debt, while grappling with rising fixed costs.

The truth is that historically, young people have always shied away from investing. A whopping 89% of 25- to 35 year-old heads of household surveyed by the Federal Reserve in 2016 said their families were not invested in stocks. That’s only two percentage points higher than the average response since the Fed began the survey in 1989.

MagnifyMoney analyzed data from the 2016 Survey of Consumer Finances, conducted by the the Federal Reserve, to determine exactly how older millennials — those aged 25 to 35 — are allocating their assets.

In 2016, wealthy millennial households, on average, owned assets totaling more than $1.5 million. That is nearly nine times the assets of the average family in the same age group — $176,400. Included were financial assets (cash, retirement accounts, stocks, bonds, checking and savings deposits), as well as nonfinancial ones (real estate, businesses and cars).

While the wealth of each group was spread across just about every type of asset, the biggest difference was in the proportions for each category.

To add an extra layer of insight, we compared the savings habits of the average millennial household to millennial households in the top 25% of net worth. We also took a look at how the average young adult manages his or her assets to see how they differ in their approach.

Millennials and the stock market

Despite significant differences in income, we found that both sets of older millennial households today (average earners and the top 25% of earners) are investing roughly the same share of their financial assets in the market – about 60%.

Among the top 25% of millennial households, those with brokerage accounts hold more than 37% of their liquid assets, or about $224,000, in stocks and bonds and an additional 26%, or $154,000, in retirement accounts. Meanwhile, just over 14% of their assets are in liquid savings or checking accounts.

By comparison, the average millennial household with a brokerage account invests a little over $10,000 in stocks and bonds, or 22% of their total assets, and they reserve about 21% of their assets in checking or savings accounts.

Millennial households invest most heavily in their retirement accounts, accounting for around 38% of their financial assets, although they have only saved $18,800 on average.

Wealthy millennials carry much less of their wealth in checking and savings, compared with their peers. Although wealthier families carry eight times more in savings and checking than the average family — $84,000 vs. $10,300 — that’s just roughly 14% of their total assets in cash, while for the ordinary young family that figure is around 20%

The Fed data show that those on the top of the earnings pyramid are able to save far more for the future, even though they’re at a relatively early stage of their careers.

Across the board, older millennial families hold the greatest share of their financial assets in their retirement accounts. Although that share of retirement savings is smaller for wealthier millennial families (26% of their financial assets, versus 38% for the average older millennial family), they have saved far more.

When looking at the median amount of retirement savings versus the average, a more disturbing picture emerges, showing just how little the average older millennial family is saving for eventual retirement.

The median amount of money in higher earners’ retirement account is $90,000 (median being the middle point of a number set, with half the available figures above it and half below). But the median amount is $0 for the typical millennial family, meaning that at least half of millennial-run households don’t have any retirement savings at all.

Millennials and their nonfinancial assets

Most of millennial households’ wealth comes from physical assets, such as houses, cars and businesses.

While nearly 60% of young families don’t own houses today, the lowest homeownership rate since 1989, homes make up the largest share of the family’s nonfinancial assets, Fed data show.

For the average-earning older millennial family, housing represents more than two-thirds of the value of its nonfinancial assets — 66.4%. On average, this group’s homes are valued at $84,000.

The homes of rich millennial households are worth 4.6 times more, averaging $470,000 — though they represents a lower share of total nonfinancial assets — 50%.

Cars are the second-largest hard asset for the average young family to own, accounting for about 14% of nonfinancial assets.

While rich millennials drive fancier cars than their peers — prices are 2.4 times that of average millennials’ cars — their $42,000 car accounts for just 4.5% of their nonfinancial asset. In contrast, they stash as much as 31% of their asset in businesses, 20 percentage points higher than the ordinary millennial.

It’s worth noting that young adults in general are not into businesses. A scant 6.3% of young families have businesses, the lowest percentage since 1989, according to the Fed data. (Among those that do have them, the businesses represent just over 11% of their total nonfinancial assets.)

The student debt gap

Possibly the starkest example of how wealthy older millennials and their ordinary peers manage their finances can be seen in the realm of student loan debt.

A significant chunk of the average worker’s household debt comes in the form of student loans, making up close to 20% of total debt and averaging $16,000. In contrast, the wealthiest cohort carries about $2,000 less in student loan debt, on average, and this constitutes just about 4.6% of total debt.

With less student debt to worry about, it’s no surprise wealthier millennial families carry a larger share of mortgage debt. About 76% of their debt comes from their primary home, to the tune of $233,500, on average. This is 4.5 times the housing debt of a typical young homeowner.

In some cases, the top wealthy have another 11% or so of their total debt committed to a second house, something not many of their less-wealthy peers would have to worry about — affording even a first home is more of a struggle.

When is the right time to start investing?

For many millennials the answer isn’t whether or not it’s wise to save for retirement or invest for wealth but when to start. Generally, paying off high interest debts and building up a sufficient emergency fund should come first. Once those boxes are ticked, how much young workers invest depends on their tolerance for risk and their future financial goals.

“It’s never too much as long as you’ve got money for the emergency fund, and as long as they are funding their other goals not through debt,” says Krista Cavalieri, owner and senior advisor at Evolve Capital in Columbus, Ohio.

The biggest mistake that Cavalieri has seen among her young clients is that very few have been able to establish an emergency fund that will cover at least three to six months’ worth of living expenses.

Kelly Metzler, senior financial advisor at the New York-based Altfest Personal Wealth Management, said older millennials may not be able to save outside of retirement accounts yet, which can be a concern if they want to buy a house or have other large purchases or unexpected expenses ahead.

Cavalieri said that’s because young adults’ money is stretched thin by the varies needs in their lives and the lifestyle they keep.

“Their hands are kind of tied at where they are right now,” she said. “Everyone could clearly save more, but millennials are dealing with large amounts of debt. A lot of them are also dealing with the fact that the lack of financial education put that in that personal debt situation.”

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Shen Lu
Shen Lu |

Shen Lu is a writer at MagnifyMoney. You can email Shen at shenlu@magnifymoney.com

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College Students and Recent Grads, Strategies to Save

9 Things Every 20-Something Should Know About Money

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If you’re a “younger” millennial and find yourself struggling with your finances in your 20s, pay attention.

There’s no better time to learn about money than when you’re young and broke. The 10 years between 20 and 30 go by fast, and will be full of many important life changes that can shape your overall financial future. Whether it’s financial planning, saving, or investing, the sooner you start, the better off you’ll be.

If you can educate yourself on how to manage the little money you have now, you’ll be better prepared to manage your finances effectively when you earn more and life inevitably gets more complicated.

Lucky for you, today’s technology provides you with a wealth of (free) financial information at your fingertips, including this handy list of expert-approved money lessons to learn on your journey to dirty 30.

9 Things You Should Learn about Money in your 20s

#1: The magic of spending less than you earn

The first financial lesson you should learn is simple enough: spend less than you earn. Most people mess this one up.

At least, Pew Research shows 68% of Americans say they use credit cards and loans to make purchases that they otherwise wouldn’t be able to afford with their income and savings. This leads to more stress in your life, a dependency on debt, and an endless cycle of working to pay off or evade lenders.

Learn to follow a budget well and you’ll easily learn to live within your means. You may even take it a step further in your 20s — save more by living below your means, not just within your paycheck.

“Gain peace of mind that you’re being responsible by setting up guidelines for your spending and savings early in your 20s,” says Dan Andrews, certified financial planner and founder of Well-Rounded Success. The website provides financial guidance geared toward a millennial audience.

If you get those guidelines set early in your life, you’ll likely have an easier time addressing more complicated money topics like homeownership and having kids. If not, a large unexpected bill or the birth of a child could destroy your finances.

#2: Eventually something will go wrong

In the savings hierarchy, your emergency fund should be your first priority.You are bound to run into an emergency eventually.

“I know when you’re a 20-something, you feel invincible, but the fact is, emergencies are still going to arise, it’s not a matter of if, but when,” says Gen Y financial expert and author of The Broke and Beautiful Life Stefanie O’Connell.

The rule of thumb says to set aside 6 to 12 months’ worth of fixed expenses in case of an emergency. You can stash this money in a checking account, savings account, or any of these other options.

If you don’t plan for a financial emergency, you’ll find yourself in a tight spot when an emergency undoubtedly happens. If, for example, you lose your income, a liquid savings buffer might save you from turning to your parents for money or taking on high-interest debt to survive. That’s not an improbable crisis to imagine, as almost half of American households experience volatile income.

“By setting aside money, you can live off this savings while you look for new work, or better yet, have the flexibility to pursue the work you want,” says Andrews.

After the dust settles, you can high-five yourself for handling your crisis on your own.

#3: “YOLO” is a pretty terrible financial strategy

One of the hardest parts of your 20s is learning to think past “today” when making money decisions — especially when everyone seems to want to live in the moment.

Really ask yourself what goals you have for the future: Starting your own business? A family? Now is the time to stop thinking and start planning for how you’ll afford those life milestones when the time arrives.

Make it a habit to plan and save early for these stages before you reach them. When you’re planning, think about what’s most important to you and nearest in your life’s timeline. Don’t forget to consider the time it would take to save for larger expenses.

O’Connell gives the following example: If you decide to start saving for a $50,000 home down payment just two years before you plan to buy a home, you’ll have to save $25,000 a year. That’s tough. But if you think about that milestone money goal from 10 years out, you only have to save $5,000 a year, which is much more manageable.

Not every account has to be for a huge savings goal like a mortgage payment. You can practice the habit of planning ahead with any large purchase you plan to make.

“Create fun savings accounts, like a travel fund or to save up for that Dr. Seuss painting that you really want. These savings accounts motivate you to stash away more money for the financial milestones in your future,” says Andrews.

#4: The key to getting a killer credit score

Don’t get bogged down trying to understand everything about your credit score and why it’s so important right now. Just remember a few key facts so that you don’t mess up your score early and spend the next decade trying to undo the damage.

  • Use your credit card, but pay it off in full each month.
  • Don’t max it out. In fact, never use more than 30% of your total available limit.
  • The best strategy: Put one small bill or recurring purchase (like coffee) on your credit card, and pay it off each month. Use cash for everything else.

If you focus on those things, you should easily avoid derogatory marks on your credit report and quickly build a healthy credit score. Learn more tips to build your credit score here.

#5: One day you will get old and want to retire

Remember how we said it’s hard to think far into the future in your 20s? Well, this is going to be challenging. But it’s crucial to start saving for retirement as early as possible. Your biggest advantage to saving for retirement is your age. The younger you are, the more time you have to take advantage of compound interest on your retirement savings and other investment accounts.

So figure out what retirement savings options your employer offers (typically a 401(k)) and open an account. If your employer offers a match, then that is amazing and don’t miss out — it’s free money.

Contact your employer’s human resources department for help working through your options. That is what they are there for. A great, hands-off option for young savers is a Target Date Fund. Then set up an automatic payroll deposit at least high enough to capture any match your job offers.

Don’t worry about the swings of the stock market. Don’t worry about picking the perfect portfolio. Just put money in your retirement fund as early as possible and get to the complicated stuff later. The point is that you start saving for retirement — not that you become the next Warren Buffett right away.

“Too many young people don’t take advantage of all the benefits they can get at their workplaces. Simply ask your HR department if there’s a match on 401(k) contributions,” says Andrews.

Once you get a good grasp on retirement savings, you can upgrade to more sophisticated investing strategies.

#6: How to be your own “tax guy”

Do your own taxes at least once. The experience will give you a better idea of how the tax system works and can save you an average $273 you’d otherwise spend on tax preparation fees. Many free and low-cost options exist to e-file your taxes, including free filing options found on the IRS website.

“When you do your own taxes it also helps to demystify the process. If you decide to pay for help in the future, you’ll be able to vet your future accountant and hold your own in conversations,” says O’Connell.

She advises young people to take the opportunity to learn about how the tax system works and any tax strategies you can use to save money in the future, like making Roth IRA contributions, tuition payments, or charitable donations.

Another reason to learn now: Your taxes may never be simpler to understand. There may be special circumstances that require you to hire a tax professional when you’re older, like getting married, investing in the stock market, or owning your own business. If you feel like you need professional help, look for a tax preparer since their rates are typically cheaper than hiring a Certified Public Accountant.

#7: When to ignore social media


Don’t get caught up in spending your money to catch up with whatever your other friends are doing. You don’t know what anyone’s financial picture looks like behind all those Instagrammed vacations or a wedding album fit for a princess.

“Your day will come when you make your friends jealous, but that’s not the point. The point is to focus on your financial life to give you the foundation to live your great life,” says Andrews.

He advises 20-somethings to gain resilience while young, because you’ll likely compare your lifestyle to others at every age.

#8: Your debt won’t go away if you ignore it

If you do decide to ignore your debts, you could suffer consequences even worse than a dinged credit score.

Debt collectors can sue you for payment. If you ignore a debt lawsuit, the resulting judgment could result in garnished wages or lost assets.

“You’ve got to become proactive about your debt. It has to go from being something you procrastinate to something you prioritize. And a priority is something you build your life around,” says O’Connell.

O’Connell suggests you change your mindset to think of debt as an emergency that needs to be addressed immediately.

“In moments of crisis we don’t make excuses, we get ruthless because we have to. Excuses like, ‘but it’s a special occasion’ or ‘I can’t give up my vacation’ don’t even cross our minds,” says O’Connell. She adds getting ruthless might mean making some sacrifices and hustling to earn more income, but it’ll be worth it when you’re debt-free.

Struggling to make your student loan payments? You’ve still got options.

#9: How and when to negotiate your salary

Remember, the salary you earn at your first real-world job “will serve as the anchor from which you negotiate future raises, making your starting salary, arguably, the most important of your career,” says O’Connell.

That in mind, it’s worth negotiating a bit to get the best deal you can when you’re presented with your first employment offer. Hiring managers and recruiters expect candidates to negotiate; to them, it demonstrates initiative. The experience will also give you an opportunity to educate yourself about negotiation skills and get valuable, real-world practice.

Again, the internet is your friend here. You can learn salary negotiation tactics from numerous online resources, then practice with friends or mentors so you’re ready when a real offer is on the table. One word of warning: Don’t bite off more than you can chew. Remember, you can ask for much more than more money (think: commuter benefits, education credit, etc.).

If you’re asking for a raise with a current employer, consider the average pay raise for salaried employees in 2017 is 3%, according to the Economic Research Institute, a think tank that provides salary survey data to Fortune 500 companies. So asking for a salary hike from $50,000 to $60,000 is pushing it at a 20% pay raise without much experience to justify your ask.

To sum it all up…

Just do your best. Focus on learning these concepts, but don’t beat yourself up. If you stray from your path to financial freedom every now and then, it’s all right. You can’t expect to be a perfect money manager — even accountants have accountants — but if you correct yourself when you make mistakes early on, you’ll be glad you made the effort later on in life.

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Brittney Laryea
Brittney Laryea |

Brittney Laryea is a writer at MagnifyMoney. You can email Brittney at brittney@magnifymoney.com

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News

How Millennials are Redefining the Non-profit World

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Geeting advice on future investments

If you’ve always suspected that millennials have hearts of gold, a new study from Merrill Lynch may help solidify that opinion. According to findings from this new report, 60 percent of millennials are interested in starting their own organization to give something back.

Of course being interested in starting a non-profit and doing so successfully are two very different things. Matthew Dupuis is a Merrill Lynch financial advisor who has worked with dozens of millennials and other clients to help them set up their non-profits. Here’s what he had to say about getting started on the right foot.

What are some of the most common mistakes millennials make when trying to set up a non-profit? 

Dupuis: There are so many great organizations and amazing ideas out there, breaking through to the mainstream is difficult. Take the time to understand what you are trying to achieve, the impact you want to have, and how you plan to get there. It’s so important to do your homework and understand what it takes to build out the infrastructure from scratch, both from a financial and time perspective. Surrounding yourself with people who share your same passions and ambition to make a difference is critical. Setting unrealistic expectations is one of the biggest issues I see.

Also, make sure you are balancing the efforts it takes to set up a non-profit with other personal goals. Particularly for millennials, you still need to be sure to be saving for a rainy day fund or even long-term, such as retirement. Setting up an organization requires heavy lifting, and some people fall short of their personal goals when they don’t look at the big picture. 

For more on how to save for retirement on an inconsistent income, check out this piece, or read this one about how to jump start retirement savings after 40.

What are the three most important things you need to do when trying to set up a non-profit? 

Dupuis: First, take the process one step at a time and have patience — get to know what you’re trying to do and what the roadblocks in front of you might be.

Second, find someone to act as an advisor so you bounce ideas off them and really use them as a soundboard. A good advisor will be able to point you in the right direction and help you put a working plan in place.

Third, understand and focus on what your short, medium and long-term goals are. One of my clients, Clarissa Black, is the founder of Pets for Vets, which matches shelter dogs to returning veterans to help them with post-traumatic stress disorder, traumatic brain injury, anxiety and depression. As Clarissa was building out the program, we spent time talking about what kept her up at night, the impact she wanted to deliver, and what she was ultimately hoping to achieve. By having a goals-based plan in place, we are able to identify the right solutions to build out the organization for the long-haul.

What other advice do you have, particularly for millennials interested in setting up a non-profit?

Dupuis: Keep in mind it’s never too early to talk with an advisor about putting a plan in place and how you can structure your assets to meet your financial goals. Contributing time and/or money for something that’s important to you is becoming a part of many people’s goals and aspirations. And for those who might not be looking to start a non-profit but want to give, there are organizations and investments you can consider to make an impact. Millennials are redefining philanthropic giving, both in the form of time and money. It’s no longer all about how much one can accumulate, but rather how much one can give back to something they’re passionate about during their lifetime. This millennial generation is making positive impacts every single day and will be alive to see their determinations become realities.

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Cheryl Lock
Cheryl Lock |

Cheryl Lock is a writer at MagnifyMoney. You can email Cheryl at cheryl@magnifymoney.com

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College Students and Recent Grads, Life Events

Finding Success Without Going to College

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Senior Couple Talking To Financial Advisor At Home

Millennials were born between 1980 and 2000, and grew up to be the most educated generation in history. No other group of adults holds as many postsecondary degrees as Generation Y.

It makes sense why this demographic would focus on higher education. College and advanced degrees have historically led to higher earnings after graduation. And many millennials who faced trying to find a job post-2008 and continuing on to more advanced degrees chose to just stay in school in an attempt to ride out the recession.

While millennials may be more highly educated than any other group of adults, they’re also dealing with the consequences of acquiring so many degrees. Collectively, America’s student loan debt burden is in the trillions and many young adults struggle to find financial stability after school. Student loan repayment eats away a big chunk of their earnings — even when their college degrees do allow them to bring in bigger incomes than their less educated peers.

But not everyone from younger generations like Gen Y (and Gen X) fresh out of high school went the traditional path of graduating high school, going to college and attaining four-year degree from a university. Some chose not to pursue those four-year degrees at all and found a different path to success.

Making Conscious Decisions to Avoid Debt

Jordani Sarreal chose not to attain a four-year degree for financial reasons. “I didn’t want to be in debt,” she explains.

Instead, the 24-year-old pursued a two-year associate’s degree. Then she spent the last four years building a business that now makes six figures in revenue. She started Le Pique Nique with $200 and handmade products and her bootstrapped company has, to date, sold over 22,000 bags.

Because she was able to start a successful business, Sarreal knew that a university degree wasn’t a requirement to enter the workforce and achieve her goals. She enjoys being free from student loan debt and the ability to travel while earning a comfortable salary from her company.

Choosing What You Can Afford

Chris Lynam jokes that he’s a “classic case” of someone who became a business owner after an injury sidelined him in his chosen sport. “My parents couldn’t afford college,” says Lynam. “I opted for a junior college to play basketball.” And then came the injury.

After his injury put an end to his collegiate basketball career, Lynam discovered dance — and eventually became a dance teacher. He took the step to business owner when he started opening studios.

“My wife and I own 5 Arthur Murray dance studios in the Bay Area,” Lynam says. “We’ve helped two of our management teams open two additional locations, and I’ve become a thought leader and worldwide consultant for our company.”

After going to a private high school where most of his classmates came from money (and went to universities like Harvard and Stanford) Lynam felt a bit out of place with his choice to go to a junior college. But by his 10-year high school reunion, he was a successful business owner and a competitive dancer – and won the “Best Job” award from his former peers.

“I have always wondered what would have happened if I had taken the traditional route to college,” says Lynam, “but I’m so glad I didn’t.”

Considering the Financial Flipside

While it’s always nice to avoid student loans, some students have other reasons than “avoiding debt” on their minds when they choose alternative paths. It’s a different aspect of the financial impact that matters.

“The financial aspect didn’t influence my decision in terms of what I had to spend to get my degree, but on the financial opportunities I was going to miss out over the next 4 to 6 years from my already established businesses,” says Tance Hughes.

Hughes dove into entrepreneurship early. He started a lawn care business with a friend at 16. Then he started a printing business that he still runs today, at 24. Focusing on his business allowed him to pursue opportunities that he might have missed out on had he continued on to get a four-year degree.

“When I left college I returned to work full time at my printing business,” Hughes shares.  “We are projecting to have revenues of $750,000 this year and projecting to be at $1,000,000 within two more years. We currently employ 12 people. We have expanded into custom home decor products that are cut out of steel and we are selling online primarily.”

Finding the Right Path Through Work Instead of Classes

Lauren Fairbanks didn’t plan to drop out of her university program, but after moving from Hammond, Louisiana to New York City she decided her new home was a better fit for her. She initially went to NYC for an internship, and when it was completed, she asked for a job and received a position.

Fairbanks knew she wanted to stay in NYC once she got there. She also knew that wouldn’t be financially feasible without a full-time income. “At the same time, I wasn’t entirely sure what I wanted to do career-wise, so I figured working full-time and even job-hopping was a good opportunity to try out a few things and see what stuck,” she explains. “Ultimately, what I realized is that I like the risk and thrill of starting my own thing was what I really wanted to do.”

“That was basically the launching pad for me jumping around to a bunch of different positions and ultimately ending up in journalism — after around 5 years,” she continues. “From there I ventured off to start my content marketing consultancy, taking what I learned from working in the media and using those same principles to create branded content for companies.”

Fairbanks started Stunt and Gimmick’s, the content marketing agency, in 2010. Thanks to little overhead and minimal startup costs, that company was easier to start than her next venture – a mobile device repair shop.

If that sounds a little unexpected, it probably should: Fairbanks says the second business was a “sort of an experiment.”

“My fiance and business partner was a Director of Marketing for a chain of repair shops based in NYC,” she explains. “We had an idea for a different take on the traditional repair shop.” The couple found a good location while visiting Fairbanks’ parents in her home state of Louisiana, and opened the first Digital Remedy shop a few months later.

“It took us about a year to feel comfortable with our processes and to iron out the kinks in our business model before we rolled out to a larger market in downtown Charleston, South Carolina. And we have our third store opening in Miami, Florida in a month,” says Fairbanks.

Sticking to the traditional path of college and a (hopefully) steady paycheck is still admirable, but young millennials are proving that it’s okay to take risks and see if you can accomplish a goal without the backing of a college degree.

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Kali Hawlk
Kali Hawlk |

Kali Hawlk is a writer at MagnifyMoney. You can email Kali at Kali@magnifymoney.com

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Strategies to Save

Millennials Are Already Asking: Can I Ever Retire?

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Senior Couple Talking To Financial Advisor At Home

My parents are baby boomers. Like many in their generation, their financial confidence and retirement savings were shaken by the 2008 recession – leaving them now in their mid-sixties asking, “Can I ever retire?”

It seems funny that I, 35 years younger and just starting out in my career should be asking myself the same question. But years of scraping by on an actor’s salary with barely enough to cover basic living expenses, let alone fund long term savings, has made me question the sustainability of my financial life, both short and long-term.

A Worried Generation

It turns out I’m not alone in my financial insecurities. The entire millennial generation seems to be facing a retirement “crisis”, even from forty years away. The issue isn’t necessarily one of poor planning, so much as it is bad timing.

I graduated college in May of 2008. At the time, I celebrated the possibilities and potential of life post-grad in the prosperous “real world”. By the end of that year however, the outlook couldn’t have been more bleak.

While the 2050s, my target retirement years, were a far cry away from 2008, the effect of the recession and the subsequent years of slow economic growth and lagging job market recovery had a lasting impact.

The Ramifications of the Employment Struggle

According to researchers, college students who graduate into a weak labor market can see their job opportunities and earnings affected for 10 to 15 years. Yale University’s Joseph Altonji found that graduating into a high unemployment economy translates to a roughly 1.8 percent earnings loss per year over the span of a decade. And graduates in fields that pay less than average can see income losses of 50 percent larger than average- that’s if they’re lucky enough to have a job in the first place. As of December 2014, the unemployment rate for 18- to 34- year olds was 7.9 percent as compared with 5.6 percent for the economy as a whole.

Couple all this millennial un- and under-employment with record student debt levels and it starts to become clear how 20 and 30-somethings may be facing retirement challenges far greater than boomers and Gen X-ers.

How Debt Impacts Retirement

The Project on Student Debt found that the average debt load carried by 2013 graduates of four-year nonprofit colleges was $28,400. It’s understandable why millennials feel they have too much debt to save for retirement. With millennials spending the entirety of their 20s, if not longer, paying off student loans, they miss out on the most important decade of retirement savings.

This investment in higher education hasn’t necessarily provided a better return on investment either. According to a 2013 study by the Center for College Affordability and Productivity, nearly half of workers with college degrees were working in jobs that didn’t even require a college education. That means millennials are carrying around record debt loads while working low paying jobs, many without access to employer-sponsored retirement plans.

I know many of my fellow 2008 graduates are now going on 30 without ever having had access to a 401(k). Employer sponsored pensions are already becoming a thing of the past and the future of social security is far from certain. Without reliable access to stable, long-term careers, retirement planning is becoming an entirely self-driven endeavor for many millennials – a daunting task for those without any formal financial education, which according to a February 2014 poll by TD bank, is 69 percent.

While financial illiteracy might not be unique to millennials, this new reality of independent retirement planning is. Millennials are required to make more financial decisions on their own and they are not prepared to handle them.

How to Handle Your Own Retirement Fund

The good news is relevant financial information and resources are more accessible to individuals than ever. While many millennials may have missed out on early years of retirement savings because of low paying jobs and student loan debt, as 20- and early 30-somethings, time is still on their side.

According to a Wells Fargo survey, 80 percent of millennials said the Great Recession taught them the importance of saving and being prepared for economic problems down the road. The 15th Annual Transamerica Retirement Survey found that 74 percent of millennials are starting to save for retirement at an unprecedented median age of 22, 5 years sooner than gen Xers and 13 years sooner than baby boomers.

Even I, in my uncertain career path and limited earnings have taken responsibility for my future by putting my own retirement accounts into place. I was 24 when I read my first money book, “Investing for Dummies.” By the end of the year I had opened a ROTH IRA and committed to contributing a percentage of each paycheck to my future, regardless of how my income fluctuated. When you make retirement as non-negotiable as food and housing, you no longer rely on an employer or government benefits or a possible future raise to take care of you or serve as a catalyst to save.

That personal responsibility coupled with another 30 to 40 years of time on my side will hopefully result in a resounding “yes” when it comes time to ask myself if I can afford to retire.

 

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Stefanie O
Stefanie O'Connell |

Stefanie O'Connell is a writer at MagnifyMoney. You can email Stefanie at stefani@magnifymoney.com

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Strategies to Save

3 Steps to Make Millennials Better Savers

The editorial content on this page is not provided by any financial institution and has not been reviewed, approved or otherwise endorsed by any of these entities.

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Millennials - large

Those who keep abreast with the latest in personal finance news have undoubtedly seen the articles reporting millennials have a savings rate of negative two percent. Yes, negative two percent. The reasons for such an abysmal ability to save includes: student loan debt, credit card debt, immediate gratification, low-incomes, distrust of banks, fear of investing and a myriad of other excuses.

Interestingly, our own study performed in May 2014 actually revealed millennials to be better savers than other generations. In fact, 74.8% of millennials surveyed saved money each month. However, our survey did show 39.5 percent of millennials went overdraft an average of 2.7 times a year (a $101 mistake). Over a third of the generation carried $8,864 in credit card debt.

Short of winning a lottery or reality-show competition, there are no quick fixes to help millennials handle their debt or pay for the fifth out-of-town wedding of the season. However, there are actionable steps to take in order to improve a negative savings rate.

1. Find a Better Bank

The Atlantic’s Bourree Lam notes the millennials generation’s distrust of banks as a reason the 18 to 35-year-olds may have an insufficient savings rate.

 “This is paired with the fact that Millennials are more skeptical than ever of banks—perhaps not surprising for a generation that came of age during the Great Recession and Occupy Wall Street. One study named the financial industry as one least liked by Millennials—with Bank of America and Citigroup being the most hated.”

Well, there’s a pretty simple solution: Ditch. Switch. Save.

First of all, no one should be housing his or her savings account with Bank of America or Citigroup. Those banks offer a whopping 0.01 percent interest rate, effectively making a savings account with these banks an interest-free loan. And let’s not forget about those $35 overdraft fees and $12 fees to move money from savings to checking in the name of “overdraft protection”.

promo-checking-halfInstead, switch to a better bank (or credit union).

Internet-only banks offer interest rates close to one percent. This may sound insignificant, but could be an extra 50 to a couple hundred bucks. A savings account with $10,000 at 0.90 percent would receive an extra $90.41 in a year. $10,000 at 0.01 percent rate would get a whole $1.00.

Internet-only banks also offer real overdraft protection. There is no charge for moving money out of savings to cover an overdraft in checking. And guess what? It doesn’t cost the bank anything to make that transaction for you. So Bank of America is making $12 of pure profit anytime a customer goes overdraft and the bank’s “protection” moves money out of savings to checking for said customer. No wonder BofA makes nearly one million in fees per bank branch.

2. Reduce Credit Card Debt

Balance transfers offer millennials a short cut to paying off debt. By taking interest rates from nearly 20 percent or higher to zero, consumers are saving hundreds to thousands of dollars and shaving years off debt repayment.

Unfortunately, balance transfers scare a lot of people who feel beaten down by the financial system.

Many people don’t want to tangle with getting another credit card or worry about how the bank is going to trap them. Banks do offer these zero percent offers to lure people in and hopefully make money off them, but knowing the playbook gives consumers the ability to use the balance transfer offer without getting whacked with fees or hiked APRs. Those who lack discipline to put a credit card in the freezer and avoid spending shouldn’t do a balance transfer. But those with self-control and a 700+ credit score can drastically reduce their interest rates.

Balance Transfer Q&A

Q: Doesn’t applying for a balance transfer hurts my credit score?
A: Your credit score will take a small dip (typically 5 to 10 points) when you apply for a new credit card. But your credit score isn’t a trophy and should be used to help you get the best financial products. If your score is in the 700s, you can afford a 30-point dip to move your debt to one or multiple cards. You will also see those points return relatively quickly.

Q: Don’t I have to pay a fee?
A: Many cards do have a fee, but this fee is nominal compared to the amount of interest you’d be paying to your bank. There are some no fee balance transfer options, which can be found here.

Q: How do I complete a balance transfer?
A: We have several step-by-step guides (with pictures) on our site. Click here to find them. Be sure to read what to do after you’ve completed a balance transfer as well.

Q: What if one card doesn’t take all my debt?
A: You can try utilizing another balance transfer offer to move all the debt over. $8,850 of debt may take two separate cards.

Millennials paying $250 a month on $8,850 in credit card debt at 18 percent interest will take 4.25 years to pay it off and shell out $3,861 in interest alone.

By utilizing balance transfers, millennials with $8,850 could reduce their interest and fees paid to $560 and pay it off in just over three years. That’s already $3,301 that could go into savings, investing or towards paying down student loan debts.

promo-balancetransfer-wide

3. Make Practical Investment Decisions

Financial reports often point to the millennial generation’s hesitation to invest as a byproduct of witnessing the fall out of the Great Recession in 2008. This type of past-negative thinking could cause millennials to stay in the workforce until well passed 65 because they were unable to save enough for retirement.

Retirement may seem a long way off for millennials, but committing to saving and investing early can be the difference between having a million or $50,000 in retirement.

Some companies force millennials into saving by creating an “opt-out” 401(k), which reduces the number of apathetic employees who feel too overwhelmed at the idea of picking investments and just avoid signing up.

Those millennials who keep procrastinating investing should consider simply putting their retirement savings in a target date fund.

A target date fund makes investing for retirement simple. Instead of needing to be hands on to balance an investment portfolio over the years, the target date fund simply transitions from aggressive to moderate to conservative as a person nears retirement.

For example, a 25-year-old who plans to retire around 65 would put all her 401(k) money into a 2055 target date fund (the funds are typically in increments of five years).

Right now, the fund would have the young millennial in a relatively aggressive portfolio with more of a focus on stocks, but as she ages towards retirement it would move from fewer stocks to more bonds and cash. This way, if the market did tank close to 2055, she would have her retirement savings in less volatile investments and not lose as much of her savings.

Millennials who don’t have a 401(k) option with an employer-match can still save for retirement through an IRA. A brokerage company like Vanguard offers a target date fund within an IRA. Retirement contributions can also offer tax breaks resulting in a higher tax refund which can either go directly into savings or towards student loan payments and other debts.

Those willing to tolerate a little more risk and with some extra money outside of an emergency savings account should also be investing outside of a 401(k) and IRA as well. Avoid the desire for individual stock picking though and focus on mutual funds and index funds.

Remember: the stock market will take dips. Don’t be overly emotional and resist the urge to start pulling money out any time there is a downturn.

Increase that savings rate

A negative two percent savings rate will cripple the millennial generation’s ability to pay for the next natural phases in life: to buy homes, purchase cars, send the next generation to college and retire. While the generation may focus on less materialistic goods and prefer to sink money into travel and life experiences, those still come with a hefty price tag. It’s time for the men and women in the 18 to 35 bracket to make tough decisions about what they can afford, focus on how to pay down their debt and get over fears of investing in the stock market.

Advertiser Disclosure: The card offers that appear on this site are from companies from which MagnifyMoney receives compensation. This compensation may impact how and where products appear on this site (including, for example, the order in which they appear). MagnifyMoney does not include all card companies or all card offers available in the marketplace.

Erin Lowry
Erin Lowry |

Erin Lowry is a writer at MagnifyMoney. You can email Erin at erin@magnifymoney.com

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