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How Young Adults Can Overcome The ‘Shoulda Woulda Coulda’ of
Financial Security
There’s No Time Like The Present For Them to Put Financial
Houses in Order
When it comes to preparing for long-term financial security, how
many among us wish we would have done things a little differently
way back when? We should have done this, or we could have done that.
There’s a whole new generation of young adults – Millennials in
their early to mid-twenties – who could learn from our missteps. And
the members of the Millennium Generation readily admit they’re
struggling with their money management and financial security.
According to a 2004 Northwestern Mutual-commissioned study by Harris
Interactive , more than half of adults in their early to mid-20s
confess they have little knowledge about money management and
investing, while only five percent feels very knowledgeable.
Millennial women are even less knowledgeable than men about handling
their finances; while 50 percent of men say they are “very” or
“somewhat” knowledgeable, only 30 percent of women feel the same
way.
Based on this lack of knowledge, it’s no surprise that Millennials
have been relatively unsuccessful at avoiding large debt. The
Millennium Generation Study found that 20 percent of 2001 college
grads have amassed more than a $5,000 on their credit cards.
Debt by plastic is a growing problem among the Millennium
Generation: According to another survey by Myvesta, a non-profit
consumer education organization, those aged 18-24 carried an average
balance of $1,208 on their credit cards in 2003, up from $849 in
2002. Interestingly, Millennials are now accruing more credit card
debt while Americans on the whole are reducing theirs’ – in 2003,
the average American had credit card balances of $2,294, down from
$3,250 in 2002 .
Beyond credit cards, the Millennium Generation Study found that 45
percent have accumulated more than $10,000 in student loans – the
same amount that more than 40 percent of 2001 post-grads were still
trying to pay down in 2004. These numbers appear likely to rise,
based on rising college cost trends. Nellie Mae, the student loan
company, says in 2003, the average undergraduate debt was $18,900,
up 66 percent from $11,400 in 1997 .
Despite their lack of knowledge, the Millennium Generation believes
home ownership will be their most important asset for financial
security, closely followed by 401(k)s and IRAs. Unfortunately, the
Millennium Generation Study found that only one-fifth of the group
says they are very knowledgeable about owning a home.
Furthermore, they see tools such as life insurance, employer-paid
pensions and profit sharing as even less important. In fact,
Millennials are divided on the importance of profit sharing – only
about half say it’s important and the other half say it is not.
No Time Like the Present
Clearly, this is a group that is headed for a time of “shoulda
woulda coulda” when it comes to their financial security. But, it
doesn’t have to be that way. While future financial goals are not
exactly top-of-mind for those in their twenties, it is highly
advantageous to get educated and take action now, especially as they
establish their careers, save and invest their salaries, and
anticipate their key earning years. Here are some proactive
financial strategies for twentysomethings:
- Establish good credit. To avoid future credit card debt, monitor
and minimize credit card purchases, and make sure the monthly amount
can be paid in full or at least paid at a lower-interest finance
charge.
- Create an emergency fund. In case of unemployment, create an
emergency fund to help cover at least 6 months of wages. The easiest
way to do this is to automatically deduct the money from each
paycheck.
- Start a 401(k). While evaluating a job, know the value of
retirement benefits, such as a 401(k), and enroll as soon as
possible. Raise time is a smart time to increase contributions into
the plan – most won’t miss the extra money.
- Learn about investing. To get started, use resources like Internet
sites, books, continuing educational courses and talking with
financial professionals. One source, www.money.com, has a section
called "Money 101: An Interactive Course on Managing All Your
Finances," which has information on the “Basics of Investing,” and
related topics .
- Cover basic insurance needs. Young adults should arm themselves
with good insurance coverage – health, auto, renters and disability
income insurance at minimum. Some plans are available through an
employer (health, disability, life, etc.), but everyone should make
sure they have adequate coverage for their particular situation.
Talking with a financial expert can help determine this.
When it comes to financial security, it’s never too early to start
looking ahead – even as young adults enter their first jobs. The
more they know now, the more benefits they’ll receive later.
David S. Silver is a Financial Representative with The Northwestern
Mutual Financial Network based in Tampa, FL for The Northwestern
Mutual Life Insurance Company, Milwaukee, Wisconsin. To contact
David S. Silver, please call 813-426 1080 or e-mail him at
david.silver@nmfn.com.
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