Millennials & Money

I’ve been lucky enough to spend some time with a few really great millennials recently.  While I’ve done a video or two about millennials and money, I felt it was time to write a blog post about some of the challenges facing millennials and how we can help them find their financial footing.

A millennial is anyone who was born in the late 1980’s through the early 2000’s.  The oldest of them now have children of their own and are well on their way to building their lives.  The youngest of them are just now graduating from high school and heading off to college or jobs, experiencing the first growing pains after leaving the nest.

The first, most important thing to remember about millennials is their comfort with technology.  This informs every aspect of their lives, especially how they spend and manage their money.  Traditional banking and ways of handling money are losing ground with millennials because they are inefficient and cumbersome.  I recall having conversations with many parents of millennials about the fact that they don’t know how to write a check.  My response to that is, that’s fine.  If they need to learn how to write a check, they will!  My concern is not the check writing, it’s whether or not they know how to reconcile their bank accounts.  That, in my opinion, is the more important skill to learn.

Millennials suffer from the same thing we all do and that is a lack of compulsory personal finance education in our school curriculums.  No one will ever be able to give me a satisfactory explanation as to why money management is not taught in schools.  It should be a mandatory class just like reading, writing and arithmetic.  Children will do what their parents did.  If they were never taught how to manage money (like my parents), they will pass on poor financial habits to their kids.  So, if you add this to the fact that millennials just lived through one of the worst recessions in the history of the United States, you can see how the average millennial may have a distrust of basic investment and money management techniques.  Stretching their financial and investment wings can be scary for the average millennial.

Many millennials are making different life choices than previous generations, too.  They’ve been told all their lives how important it is to go to college so they can get a good job and build a home, family and future.  Times have also changed.  The cost of a college education has skyrocketed over the last twenty years.  The days of getting a job, staying in the job for thirty years and getting a company funded pension are also over.  In the 70’s, companies started changing from employer sponsored retirement plans to employee funded 401(k)s, giving employees a choice in whether or not to save for retirement.  A plan that has not worked out well for the employee, in my opinion.

Now millennials, believing they are making the right choice, head off to college after high school and rack up tens of thousands of dollars in student loan debt that must be paid back.  Since they are graduating with all that debt, they are forced to use their income to pay down their debt rather than save in their self-funded retirement accounts.  The net effect of this is they are losing out on “time in the market” where the principle of compound interest can produce the most gains over time.

The reality of financial life in America is that our greatest source of retirement savings is our earned income.  If you are paying down debt rather than saving in an investment account of some sort, you will likely never be able to catch up on those lost earnings.  This, in and of itself, is the most disturbing aspect of our skyrocketing national student loan debt.  Our young people are burdened with student loan debt that they spend years paying back rather than saving for retirement.

Okay, we’ve talked about challenges facing millennials.  Now let’s talk about how we can help them on the path to personal financial freedom.  You can start by banging the drum of the five most important rules of money management and here they are.  First, live within your means.  Second, make a budget and stick to it.  Third, save a consistent percentage of your income.  Fourth, don’t just save it, invest it!  Finally, fifth, if your employer has a company 401(k), enroll in it immediately and get the employer match.

Make sure you are teaching them the most important principle of personal finance, compound interest.  If you don’t understand what compound interest is, stop reading this blog post right now and google it.  Immediately!  I cannot stress enough how important that principle is.  Compound interest is the foundation of every successful money management plan.  It just is, period.  This principle is what makes janitors and factory workers millionaires.

You should also be explaining to them that compound interest also works in the opposite direction.  Take credit card debt, for example.  If you are carrying a balance on your credit card, you know that interest is charged to that balance every month.  The interest accrues, or adds up, over time until your balance balloons to an unmanageable amount.  The basic principle at work in this idea is “debt avoidance.”  Please advise your millenial to avoid debt as much as possible.  The fact that this includes minimizing student loan debt should be a given!  Do what you can to avoid debt and when you get into debt, pay it off as soon as possible!

Remember this phrase: people should be paying you interest, not the other way around!

The last thing I want to talk about regarding millennials and money is the concept of empowerment.  Having money changes the way you make decisions.  For example, let’s say a millennial (we’ll call our millennial M) gets a flat tire.  Here are two scenarios that demonstrate financial empowerment or weakness through money management. 

In the first scenario, M is not a budgeter, has $30,000 in student loan debt and an entry level job at X company.  M is living paycheck to paycheck and barely paying the bills with no money saved for a rainy day, let alone retirement.  M has to wait for the tow truck driver and loses a day of work without pay, then winds up having to buy a tire on a credit card for $400 just to get the car on the road for the coming work week.  The initial cost of that tire is somewhere around $600, when you include the lost day’s wages.  It continues to go up as our millennial pays interest on the credit card used to purchase the tire.

In the second scenario, our millennial budgets carefully every month.  M also has an entry level job at X company but M has two roommates who pitch in with the monthly expenses.  As a result, our millennial has paid down $30,000 in student loan debt to $23,000 while managing to save $1,000 in an emergency fund.  M uses some emergency fund cash to give a friend some gas money for a ride to work for a couple of days.  On the weekend, M and friend take the tire off the car and drive to Walmart where M buys a replacement tire for $275.  M and friend put the tire back on the car and M is back on the road for work on Monday.  M didn’t miss any days of work and was able to pay for the tire in cash, bringing the total amount of the tire to less than $400, including gas money for the friend (or Uber rides, if you prefer).

Of course, you can find all kinds of things wrong with either simple scenario.  Don’t let that hide the point of the exercise, learning about financial empowerment.  When you manage your money carefully and well, using a few simple money management principles, you can make decisions from a place of strength and not weakness.

These concepts and tips will help any millennial build a strong financial foundation, if he/she applies them accordingly.  Of course, none of these ideas will be helpful if no one knows about them.  We need to take it upon ourselves to help educate those millennials around us about how to manage money in a smart and practical way.  Let’s accept the challenge of educating our young people about how to make smart financial decisions.  If we all work together we can help the next generation live happier, healthier, more peaceful lives.

Spend well, my friend!

The Dollar Lama

P.S.  Make sure you check out my online courses, books and resources, too!  Investing in your money management education is an investment in yourself.  That’s the best investment you’ll ever make, I guarantee it!  Don’t forget my weekly Facebook live videos on Facebook.com/newcashview, Instagram @joyalfordbrand and on my YouTube channel NCVTV. You can catch me twice, on Mondays between 3:00 p.m. and 4:00 p.m. for my Monday Money Management Minute and Thursday evenings between 7:00 and 9:00 (Eastern Standard time), for my weekly NCVTV episode. They are packed full of useful and entertaining money management information! If you’ve missed any NCVTV episodes, you can see the latest on newcashview.com or you can check out my YouTube channel and get caught up! You can get there by clicking here. Remember, like and share the NCVTV videos on Facebook and all your social media platforms, so others can benefit from them, too!