In a previous blog post we talked about some of the unique financial issues facing forty-something members of Gen X.
Of course, if you are a Millennial (in your young twenties or thirties), or have kids in that age group, you already know that the generation right behind Gen X has its own set of problems.
For the vast majority of Millennials, the #1 problem is debt. Almost half of Millennials surveyed characterize their debt, much of it large student loans, as “overwhelming,” according to a recent Wells Fargo Retirement Survey.
So overwhelming, in fact, that 87% of Millennials report they either don’t have “enough money to start saving,” or weren’t ready to start savings until they could pay down debt first.
While that might sound like a good idea, it doesn’t really work in reality.
The biggest factor on your side when saving and investing is time. And the longer you wait to start saving, the harder it gets to accumulate the amount you need.
So here’s some on-target financial advice for Millennials.
Practice your juggling skills. Parents, your millennial children actually do listen to you (surprise!). In fact, more than half of them turn to you for financial advice. Make sure you explain that, as important it is to pay down debt, saving and investing for the future is one financial task that cannot wait. One way to juggle simultaneous goals like paying down debt and saving is to put half your money toward debt repayment and the half other toward savings. Simply put, you need to work on both goals at once.
Join up. A great way to save and earn tax benefits at the same time is to sign up for the retirement plan at work. Start now even if it means starting small. You can always increase your contribution over time. Your ultimate target is to save 15% of salary. If you don’t have a plan at work, contribute to a Roth IRA. Under current legislation, a Roth will grow forever free of tax. One of our most rewarding jobs is helping the Millennial kids of our clients get a great start on investing by contributing to their first Roth, Traditional IRA or 401(k) account.
Make hay while the sun shines. If you are temporarily living at home, take advantage of your reduced expenses to save, save, save. Did you know you can fund your Roth IRA every year in addition to funding your 401(k) at work? Get in as much as you can now, because when you’re old and grey, you may make too much money to qualify for Roth contributions (your ability to fund a Roth phases out at higher income limits).
Make it easy. You probably already know that if you wait until the end of the month to save, there may be nothing left to save. So put your savings on automatic pilot. Set up a monthly transfer from your checking account into your Roth IRA, into a “house down payment” account, or another investment account you’re trying to build up over time.
Act your age. Millennials are reportedly “skittish” about the market since they’ve grown up during a period of huge market swings. In reaction, some invest far too conservatively given their age and need for growth. Your long-term time horizon is ideally suited to growth investments, so seize the opportunity.
Bonus: Here’s how to tell if you really do act your age! Take the quiz “How Millennial Are You?” and see where you fit on a scale of 0 to 100. If you think you’ve been born into the wrong generation, this is your chance to find out. (Survey constructed by the Pew Research Center).