Millennials. Just the mere mention of the term brings out a variety of opinions. It always amazes me how certain generations get assigned a number of stereotypes. Stop me if you have heard these before:
Millennials are lazy and entitled.
This generation is so selfish and immature.
Millennial money habits are terrible.
This is truly the “me” generation.
Millennials are worse off than their parents and grandparents.
Those are just a few of the common stereotypes millennials are given. Since many of the people I work with are from the millennial generation, I thought it would be interesting to discuss my experiences. Having worked with people from a variety of generations, I have always enjoyed being exposed to people of all ages and backgrounds. I think its especially important to discuss millennial money myths. In the United States, people from every generation are struggling with financial issues.
The Latest “Worst Generation Ever”
I want to paraphrase a quote for you that I have never forgotten. “All I can say is that that this is the WORST generation of kids I have ever taught. I fear for our future once you guys are in charge. The majority of you are spoiled, disrespectful, and think the world owes you something.”
When was that statement made? In 1990, by one of my teachers in high school. It was her farewell “rant” to my graduating class during the last week of school. I guess in her estimation the world should have come to an end a while ago. Generation X is still here, alive and kicking.
Of course many of my classmates acted in that way. Why? Because they were 18 years old! The majority of my classmates were really nice people. I know so many who have grown up to be fine adults and raised a family of great kids. Sure, there were a few knuckleheads, but isn’t that true with every generation that has ever lived on this planet?
Age Changes Our Perception
The funny thing is many of my friends growing up had parents who were former flower power hippies who views changed on the world as they grew up, matured, and started a family. It’s really funny watching movies from the late 60’s and early 70’s when all those social changes were happening. The young people at that time drove their Mom and Dad absolutely nuts.
I think it’s important to address stereotypes. Some of them are humorous and can be taken with a grain of salt. For example, my Mom is German and I have a huge family over there. What are the stereotypes about Germans? They are stern, industrious, and have no sense of humor. I find it hilarious, especially since my family fits NONE of those descriptions. That stereotype has been passed down through the decades and continues on.
The Danger of Stereotypes
The danger of stereotypes is that those statements can influence people on how they view themselves. If you repeat a millennial money myth enough, some people are going to believe it. For example, there is the old myth that most girls are bad at math. What if you are female, and are sitting in a classroom led by a woman nervous about teaching? What if she actually embraces that belief? Studies show that it can filter down and affect your performance! The book “Choke” by Sian Beilock is highly recommended if you are interested in learning more about this phenomenon.
My experience with millennials has been the same as every other generation of people I know. The majority of them are fantastic people. In fact, as an entrepreneur, I have met so many people from that generation who disprove the myths every day. They are highly motivated, incredibly conscientious, socially aware, and very interested in successfully managing their personal finances.
Millennial Money Success
In my financial planning practice, I work with so many millennials who are taking charge of their financial future. Just think about the events of 2007-2009, when many of the millennials were at a tender age. They saw their parents and grandparents impacted by catastrophic financial events. When you see family members go bankrupt, lose their home, a great deal of their wealth, and struggle to keep a job, it leaves a mark. Thankfully, many people from that generation are trying to apply lessons from the past in order to avoid a similar fate.
This reminds me of my own grandparents. My grandparents in the United States were born in western Kentucky in the 1920’s. They were both raised in poverty by farmers. When the Great Depression hit, their families were impacted even further. The United States economy at that time was approximately 50% agricultural. Prices for goods sold by farmers crashed, and many people were wiped out.
My grandparents knew what it meant to have nothing. They knew what it was like to go hungry and wonder where their next meal would come from. Do you think it affected their views on money? Of course it did! Many children of the 1930’s became incredibly frugal and spent money very carefully the rest of their lives.
Millennial Money and Sound Financial Principles
Sound money management principles have not changed much over the decades. In fact, I think there is such a tremendous opportunity to help more of our future generations build financial fitness. I am going to cover the major areas of financial planning and show how millennial money needs are not much different from those of any other generation.
Regardless of when you were born, you have a very unique relationship with money. I do not believe there is a “one size fits all” approach to personal finance. If a plan does not take into account your goals and viewpoints about money, it is inappropriate. If you are in a committed relationship, it is likely that even you and your significant other have different views on financial topics! This makes proper planning and communication even more critical.
Financial Goals – Fuel Your Financial Fitness
The overwhelming question you need to answer: What do I want my money to do for me? Personal financial goals are the beginning of success with money. You should have a good idea of what you want to accomplish financially. Many of us do not sit down and seriously think about what we our money to do for us. Money is a tool. I liken money to a hammer. If you use it properly, it can build and construct many beautiful things. On the other hand, improper use can cause a lot of destruction in a short amount of time!
Millennial Money Management and Cash Flow
A good plan starts with a balance sheet. It is the process of taking the things your own (your assets), and comparing them to what you owe (your liabilities). When you take the difference between the two, you get your net worth.
Your assets include your cash, home, investments, and any other things that have value. Your liabilities include debt, such as credit cards, mortgages, and student loans. Tracking your net worth is the true measure of wealth. If you own a million dollar home and have a million dollar mortgage with no savings, your net worth is zero. That is not what we want! Once you get an accurate view of your current net worth, you can get down to building out your plan.
Cash flow is important to people of all ages. It means that you have more coming in than going out. Think about a business. If a business spends more money than it brings in, how long can it last? It’s very important to get control over your monthly spending habits. By making sure you have positive cash flow and paying yourself first, you can truly start to build wealth for the long haul.
Investment Planning – Build a Solid Financial Future
You should have the strong desire to have your hard earning savings work for you. That is where a proper investment strategy comes in. This is an area that many people struggle with since it can be confusing and overwhelming. Good investment planning does not have to be complicated! It all depends on what purpose you have for that money. You can open an investment account and build a solid portfolio in a short time. There is so much research available that demonstrates how to build a successful strategy without taking too much risk with your hard earned money.
What should I invest in?
How much money should I allocate for each investment?
Why should I take advantage of investment accounts that have tax benefits?
I want to buy a house in five years – where is the best place to put my money?
What does academic data teach me about successful investors?
Insurance Planning – Prepare for the Unexpected
The majority of us have circumstances that require insurance. Proper insurance planning usually involves much more than just car and homeowners’ coverage. If you have a family, you have to think about their situation if tragedy strikes.
Would your loved ones be able to care for their financial needs if you were gone?
If you are employed and get injured, would you have enough money to survive without proper disability insurance?
If you get a life-threatening illness, are you properly insured to afford treatment?
Believe me, it’s no fun to think about those things. It’s easy to just procrastinate and avoid the discussion. Remember this – insurance is a loving provision to have in place. I can share many sad stories with you about how tragedy has impacted people in my life. I am sure you can do the same.
Another key component is proper long-term care insurance. 70 percent of people over age 65 will require some type of long-term professional care.
Would you be able to afford it in retirement?
Do you currently see this situation with a parent or grandparent?
Can they afford proper care at home or in a nice facility?
Insurance is all about controlling risk in your life. What risks are the most important for you to identify and mitigate? It all depends on your circumstances and your tolerance level.
Education Planning – Dealing with Student Debt
If you are a millennial who attended college, you know the massive impact an education has on your money. Most of my millennial friends and colleagues struggle with some form of student loan debt. Education costs have become such a strain on the average American family. Many millennial money issues relate right back to college tuition costs.
The data since 1980 is staggering on how much the cost of college has risen since that time. Despite that fact, many parents want to be able to assist their children with their education in the future. This requires proper planning and saving.
Education planning ties right in with investment planning. The majority of education savings vehicles allow for an investment component. It is important to choose wisely when planning for the future, especially with a clear goal in mind. Starting early is critical. In the USA, the state you live in matters when it comes to education planning. Some states have different programs available that might be appropriate for you and your family.
Tax Planning – Avoid Paying Too Much
Tax planning is something that many people overlook. Taxes are going to affect you for the rest of your life. Believe me, they will have a significant impact now and in the future. There is an art and science behind proper tax planning. If you structure your investments properly and utilize them properly in the future, it can reduce your tax burden. Another millennial money myth is that they have no clue on how to pay taxes. Once again, I can point to people of my generation (and older) who can say the same!
With the recent changes to the tax laws, there are more questions than answers on what the future will hold. You have to consider the tax implications on all areas of your financial plan. Good tax planning does not simply mean getting a few bucks back from the IRS when you file your return! If you understand the basics of tax planning and apply it to your strategy, you can save a significant amount of money over the course of a lifetime.
Estate Planning – Leave a Legacy and Protect Your Loved Ones
Estate planning is similar to insurance in the sense that it deals with a subject we all tend to avoid.
What do you want to happen to your money when you die?
If you have a family, and you are the breadwinner, what would happen if tragedy hit?
Do you have a will in place?
What about power of attorney forms and a health care proxy if you were incapacitated?
It is no fun to think about, but the human race has a lousy record when it comes to immortality! It is a reality you have to address. The majority of Americans sadly have no will or estate plan in place. When they die, it is possible that their wishes are not met in regards to their money. Even worse, their surviving spouse and children may suffer financially for years after.
Most people think estate planning is only for the wealthy. That is not true. As you gain more assets and add to your list of family and loved ones, it becomes more and more critical. You need to have an estate plan in place. It may start simple, but that is better than nothing. If you are over 18 years of age, you should have some legal documents in place to protect you and your loved ones.
Retirement Planning – You Are Never Too Young to Start
You cannot start planning for retirement early enough. Some people get serious about their financial plan when they start to think about retirement. Unfortunately, that is too late for many of them. You need to plan and invest for your future as soon as possible. Retirement will come a lot faster than you think. Besides, I am sure you see many people around you struggling and working well into their 70’s and 80’s because they cannot afford to live on just Social Security.
Retirement planning takes all of the items we covered into consideration. It is all about a strategy and building a plan based on your circumstances. Your goals are critical to proper retirement planning.
What do you envision for your future?
What kind of lifestyle do you want in retirement?
How long do you want to work?
Would you love to retire early and live the life you envision?
Millennial Money – Build a Solid Foundation
You don’t have to have all of the answers right now, but you need to think about it! I can’t believe how fast time flies by. I am in my mid-40’s and my early 20’s seem like yesterday. If I could go back to my 21 year old self and give myself a lecture, it would be to start saving and investing early. The math is overwhelmingly in your favor! Even if you are older, it’s never too late to start.
Millennial money needs are based on the same foundation of every other generation. Spend less than you make. Set personal financial goals that involve planning and saving for the future. Protect the things that are important to you. Finally, understand that you might have to do more financial planning than previous generations. The cost of living keeps going up, and there are less guarantees when it comes to a secure financial future.
Build Financial Muscle is designed to promote positive action toward a lifetime of financial fitness. Check out my Build Financial Muscle Boot Camp, which covers ALL of the millennial money issues that weren’t taught in school! We are all in charge of planning for our own financial future. Millennial money does not have to be complicated! Build a solid foundation and you can build a sound plan that keeps you on the right path for life.