Every generation faces its own hurdle and for the Millennials of today’s world, debt can certainly throw you off balance, especially student loans. According to a recent article published by the Wall Street Journal, financial overconfidence has put Millennials in a fragile situation.
So who are Millennials? They’re the demographic of people born between the early 1980’s and early 2000’s. In a study of college students, 73% of participants said they maxed out credit cards, paid bills late and took out pay day loans. Evidence suggests Millennials are in denial that an economic downturn can affect them like past generations.
This generation is one where parents are quick to bail their children out of difficult financial situations. A previous survey found more than half of parents helped their children out financially, 26% took on additional debt and 7% of parents made the decision to delay their retirement.
Reports say Millennials have a lot of confidence and unwavering optimism. While this is positive, the generation has rarely been advised on how a downward move in the economy could be impactful. However, there are some young adults who are focused on the future. The study says 60% have a retirement account, 45% own a home and over one-fourth have investments in stocks, bonds or mutual funds. But, not all Millennials are saving to the best of their ability. Many overdraw their checking accounts and around 20% with a retirement account have taken a loan against their savings or made a hardship withdrawal.
Compounding investments is something Millennials should consider. Compounding is the process of generating earnings on an asset’s reinvested earnings. The more time you give your investments, the more you are able to accelerate the income potential of the original investment. While most Millennials are focused on paying off debts, the focus should be on paying off the right debts while saving for retirement. The right debts include paying off credit cards and student loans.
Both the Bush and Obama administrations have led efforts to head off a financial crisis among young Americans. They’ve helped develop long term strategies to assist future generations. Millennials needs to understand the balance of managing assets and liabilities. They must also be empowered to do it on their own as well as learn how to plan for challenging situations to come. Talking with a financial planner can help get you over that hurdle and on the right foot.
Source: CPS Investment Advisors, Wall Street Journal, Investopedia