Millennials born between 1981 and 1997 are facing a variety of financial challenges.  Many are having difficulty making ends meet let alone saving toward short and longer term financial goals.

Today we are seeing more young adults staying at home longer for financial reasons.  Statistics show that approximately 32%1 of young adults are living with their parents.  Millennials are graduating from college with record debt and many are facing challenges trying to pay them off.  As of 12/31/15, approximately 20% of student loans in repayment were delinquent.2

It is difficult to begin a career while struggling to “catch up” financially and at the same time trying to build a nest egg.  Below are steps that may help eliminate some of these financial burdens:

  1. Prioritize expenses between “Needs vs Wants”.  This is the first step toward creating a sound budget.  There are many conflicting financial priorities when first starting out.  After paying monthly fixed expenses there is often very little discretionary income left.  Begin by building a budget to identify “Needs v Wants”.  “Needs” are fixed living expenses such as rent, utility, gas, food, etc.   “Wants” are expenses which are discretionary such as entertainment, travel, shopping, etc.  This can be an eye-opening experience to see how one spends.
  2. Consolidate and evaluate debt, including educational loans.  Make a list of all debt and corresponding interest rates.  Evaluate your loan options.  Eliminate the highest interest debt (e.g. credit cards) and consolidate into a lower interest loan.  A secured debt backed by assets such as a home or car often offers a lower rate than an unsecured debt.  After loan consolidation, create a timeline to pay off the loan(s).  Knowing there is an end in sight creates a feeling of security.  For federal student loans, repayment plans can be changed or loans consolidated into a “Direct Consolidation Loan”.  For more information go to: www.studentaid.ed.gov.
  3. Take advantage of what your employer has to offer.  Many businesses offer a dollar or percentage match through their company’s 401(k) plan.  Dollars are withdrawn directly from the employee’s paycheck prior to being paid out so there is no opportunity to “spend” these dollars.  If a ROTH 401(k) option is also offered, this may be a better choice for someone in a lower tax bracket.  Contributions to a ROTH 401(k) are taxed now at your current income tax rate rather than later, making any future withdrawals “tax free”.  The earlier retirement savings start, the more value each dollar provides long-term.
  4. Build work experience.  The Millennial’s most valuable asset is their human life value or their future lifetime earnings.  If paid employment is unavailable, an internship is a great opportunity to make important connections while gaining work experience.  Acquiring valuable work experiences and skills are transferable into future earnings growth.  As earnings grow, it becomes easier to pay bills, pay-off debt, and create savings to meet short and long-term goals.
  5. Keep an eye on your FICO score.  Many lenders use FICO to determine a borrower’s credit worthiness.  Whether buying a car or a home, being able to acquire a loan with an attractive rate can depend on one’s FICO score.  This score is generated from information related to payment history (35%), amounts owed (30%), length of credit history (15%), credit mix in use (10%) as well as the number of new credit opened (10%).3  Too many late payments, credit inquiries, or incorrect information on your credit record, may negatively affect your credit score.  It is a good idea to check your record at least once a year.  For further information on how to obtain a free credit report go to www.annualcreditreport.com.  Building and monitoring one’s credit score can make a difference when the time comes to make a major purchase.

Millennials are still acquiring new skills and experiences while they are at the beginning of their wealth accumulation phase.  This is the perfect time for young adults to create a solid financial foundation to build wealth for their future financial success.

If you or someone close to you may need financial guidance, please contact your Portfolio Counselor or primary contact at Osborne Partners to set up a meeting with one of our Certified Financial Planners.

 

1. Pew Research 2014 statistic
2. US Department of Education, News Release March 17, 2016 New Student Loan Report Reveals Promising Repayment Trends
3. www.myfico.com/crediteducation/WhatsInYourScore.aspx Percentages are based on the importance of the five categories for the general population.