Young adults today are known for making their own decisions, whether good or bad. And these decisions are frequently very different from those made by their parents and mentors. Part of this trend is due to a different style of thinking which is based more heavily on having new experiences and less on owning things. This type of lifestyle is almost completely opposite from the generation before, which drew a high level of satisfaction from the delayed gratification of ownership. Instead, this era of individuals who have only just crossed the threshold into adulthood bases personal finance decisions around travel, social events, cultural experiences and social interactions.
Financial Pitfalls Commonly Experienced
This unique change in values has led to a generation that spends money very differently than those before. It has also resulted in some common pitfalls related to personal finance. Some of these include:
- Failing to Budget – The fact that young adults place a high value on experiences has recently been verified in the 29th annual Harris Poll’s EquiTrend Study. This study showed that the group’s massive purchasing power has increased brand equity for businesses related to travel, entertainment and technology. Sadly, this spending is not always budgeted for as a large percentage of these individuals do not take time to pre-plan spending amounts and categories. Some may surmise that the lack of budgeting is due to the fact that millennials are far too busy connecting with other people and having experiences, leaving them no time to think about the amounts they are spending.
- School Debt – The ever increasing numbers related to student loan debt hit an all time high in 2016 with the average per graduate being tabulated at just over $38,000. Though graduates come out of a higher institution of learning with an undergraduate or higher degree, they find all too frequently that they are unable to meet these loan payments on a starting salary. Little thought seems to be given to the long term while students are racing from degree to degree.
- Underinsuring Vehicles – Classified as the generation that is most underinsured, many millennials seem to view insurance as fairly unimportant. This can be seen by looking at the fact that 84% of the previous generations carried car insurance compared to the 64% that agents report today. Car insurance is a critically important financial decision. Without it, young adults may find that one accident can, in essence, ruin their financial future.
- Delaying Retirement Savings – The play now save later mentality that seems to be common in these 20-somethings can also be seen in puny retirement savings accounts. Instead of capitalizing on a company’s retirement matching property, many choose to believe that retirement is light years away, never investing into their own future. The free money and benefits of compounding interest can never be made up
- Ignoring Credit Report Scores – This ultra mobile culture in which individuals move from place to place with ease has many downsides. One of these is the inability to have a permanent address. This often results in endless credit card offers coming to the next mailbox combined with the inability to get a credit report mailed out. Of course, there are ways today to review credit scores online, should individuals take time to look. Frequently, credit scores continue to plummet as young adults float from one plastic card to the next.
Personal Finance Recommendations
In order to correct some of these common financial mistakes, millennials can benefit greatly by changing one thing. Taking more time. By making a conscious decision to take time and pay attention, most will see a positive difference in each of these weak financial areas.