Why do young adults risk being the “lost generation” and not being as wealthy as their parents? It’s because those born in the 1980s grew up and entered the workforce during the Great Recession and have not recovered financially like those born in other decades, according to a recent study by the Federal Reserve Bank of St. Louis. The report concludes those born in the 1980s have 34 percent less wealth than previous generations at that same age, and that debt and homeownership may have played important roles.
I’m not here to question the methodology of the survey. Rather I ask two questions: “Are you average?” and “Why not put things in your favor?”
The group of young adults known as Millennials gets a bad rap with references as the Boomerang, Selfie or The Tolerant Generation. But they’re also stereotyped as open-minded and collaborative. And they’re well-educated and have many years ahead of them. We at Sage Financial Advisors are fans of this age 22 to 37 year-old group. They’re our future, our daughters, nephews and grandkids, and our employees. They will soon become America’s largest generation and bypass Boomers by 2019 as the largest living adult generation, according to the U.S. Census Bureau.
This article kicks off the first of a series about financial issues unique to young adults. The purposes are to stimulate conversations and for you to explore financial solutions with your family and trusted advisors. Future articles will provide financial education and share entrepreneurial advice. Topics include:
- Redefining financial goals
- Paying off debt vs. maxing out your 401k
- Hers, his and our bank accounts (and how you own your own stuff)
- Conversations to have before getting married
- Financial adjustments for young parents
Good financial health pairs well with other aspects of your life. Yet the path can be long and painful. Don’t forget to celebrate the successes along the way.
Here are five financial milestones young adults should celebrate:
- Eliminating debt – Young adults face unique challenges including enjoying today vs. saving for tomorrow. Unfortunately, millennials have an average of $42,000 in debt according to a Northwestern Mutual 2018 study. The biggest form of debt is credit cards, followed by student loans. You can only do two things with a paycheck – save or spend – and debt reduces both. Consider checking out some debt reduction tools and support groups available online – David Ramsey, Mary Hunt’s Everyday Cheapskate Monthly, to name a few.
- Emergency funds – These free you from living month-to-month, help during emergencies, and provide peace of mind during major life changes such as relocating due to a job or living independently and confidently after a divorce. A common guideline is to have enough money saved to cover three to six months’ of living expenses. You should also consider parking the funds in a competitive online FDIC money market account.
- Your first $100k – Pick a number that’s large enough to stretch you, but not unattainable within a few years. Too high of a goal is like walking to the horizon: (a) you never get there and (b) you’re frustrated, or “retirement” may be too nebulous of a concept – I remember thinking that being 60 sounded old.
- Getting paid in stock – Cash pays the bills. Equity feeds the entrepreneurial spirits and can be rewarding. Ask artist David Choe who painted the walls of Facebook with murals in 2005. He was advised to take his $60,000 fee in shares rather than cash. Those options were worth $200 million when Facebook went public at $38 a share in 2012 (now trades around $172). I use the term “stock” loosely – can be shares, options, or even cash in the form of profit-sharing incentives. Begin to think and act like an owner with a focus on growing customer satisfaction.
- Making a charitable impact – People do the right thing because it’s the right thing to do. You can be impactful and make this world a better place by giving your time, talent or treasure to a local non-profit.
Remember, “The art is not in making money, but keeping it.” Good luck and remember to celebrate your financial successes.
You can also view this article on Reno Gazette Journal.