Thursday, December 1 2022

Millennials and their money: Local councilors talk about financial factors specific to people under 50

At this point, millennials make up the largest generational cohort of adults in the world. And while the baby boomer generation may have been the largest in American history, census data shows that millennials have actually overtaken baby boomers as the largest living generation in the states. United in 2019.

As the generational baton passes, financial advisors are spending more and more time with Millennials and other generations under 50, including Gen X and Gen Z. And while some advice on financial strategy and money management may be eternal – the importance of diversifying your portfolio, for example, or having an up-to-date will – other financial factors are largely unique to these young people. Here are five of them.

Historical university debt

According to consumer spending website ValuePenguin, there are 44.7 million student borrowers in the United States who cumulatively carry $1.52 trillion in student loan debt. This equates to an average debt per borrower of $32,731, which is not only an all-time high, but has also increased massively over the past decade. Since the 2015-2016 academic year alone, the average debt of student borrowers in the United States has increased by 20%.

Hupfer

“Millennials and Gen Z, in particular, have much more overall debt than other generations,” said Teressa Hupfer, financial adviser at Edward Jones in Traverse City. “They have lower wages compared to their mortgage debt and other consumer debt, including student loans. And that sort of thing has made them grossly unbalanced in terms of their income and expenditure.

College debt is such an albatross for some young people that it overshadows other financial thoughts and considerations. Brian Ursu, president and advisor at Intentional Wealth Advisors in Traverse City, considers getting young clients to see the big picture of their financial future as one of his top priorities.

He even wrote a book on the subject – titled “What Now? A Practical Guide to Determining Your Financial Future” – which covers debt repayment and planning for life stages, from buying a home to starting a family.

Ursu

“I’ve met many millennials who are like, ‘Well, I can’t start investing until I pay off my debt,'” Ursu said. “So when we create a strategy on how to speed up payments and manage debt, we can really tackle it head-on and be really effective.”

Ursu ​​says it’s just about coordinating and prioritizing debt…but that’s not a choice either.

“You don’t have to wait for your debt to be paid off to start participating in your 401(k) or to start an investment plan,” he said. “We have to prioritize, do a bit of both and find the right balance.”

The gig economy

In Hupfer’s view, few things have reshaped the financial equation for younger generations quite like the rise of the gig economy. And while definitions of what exactly constitutes the “gig economy” can skew how many people fall into this category, there’s no question that gig workers make up a significant portion of the U.S. population.

If the gig economy comes down to online gig sites like Uber, Postmates, Shipt, or DoorDash, the Pew Research Center reported that about 16% of Americans made money this way. If the gig economy involves all independent contractors, freelancers, consultants, or independent professionals, the number is much higher — about 55 million, according to the Bureau of Labor Statistics, or 36% of American workers.

“A lot of young people are involved in the gig economy and that poses unique challenges,” Hupfer said. “It complicates the tax scenarios for them. And they may not have an employer-sponsored plan, so they have to rely on themselves to determine their retirement strategies.

For those new to the gig economy, Hupfer recommends going through a checklist of challenges ahead of time, from health insurance to planning for retirement to setting aside retirement payments. quarterly taxes.

On the other hand, if the gig is a “side hustle” (a worker doing extra work on top of their full-time job), Hupfer encourages using that money to pay off debt, start investing, or buy health insurance. life.

Cryptocurrency

According to Investopedia, younger generations are statistically “more optimistic about cryptocurrencies” than their elders. Thirty-eight percent of millennials have invested in cryptocurrency, compared to 28% of Gen X, 23% of Gen Z, and just 6% of baby boomers. But while crypto is popular, most financial advisors don’t recommend it — especially following a cryptocurrency crash in May 2022 which, according to the New York Timeswiped out $300 billion in one day.

braund

“(Investing) is about risk versus return, and there’s an enormous amount of risk with cryptocurrency,” said Erickson Braund, founder and chief financial officer of Black Walnut Wealth Management.

A crypto asset could be worth zero on the day it’s bought, says Braund, calling it highly volatile and extremely risky, “to the point where I would consider it more speculation or gambling (than investment)” .

Braund views long-term investments for its clients, which means seeking to reduce risk while earning efficient returns.

“In other words, what is the least risk you can take to get the most return?” he said. “Crypto is not that.”

Hupfer echoed Braund’s concerns.

“We get asked a lot of questions about crypto, and it’s usually by those who are 50 and under,” she said. “Edward Jones doesn’t deal directly with crypto because it’s not federally regulated, and until the day it is, you won’t see us getting involved in it.”

Hupfer says crypto is so forged by fraud, so unregulated and unstable, that if investors want to get involved, “just dip your toe – don’t go crazy.”

Instead, Hupfer suggests devoting serious, long-term investment funds to retirement.

“I never recommend that clients think of their retirement funds as fortune money,” she said. “It’s money you really want to be your safety net over the years after retirement.”

Those interested in something like crypto, or penny stocks, or anything riskier, Hupfer says to do it with some cash and consider it more of a side hobby — kinda like going to the casino – because “you just don’t know what’s going to happen.

The Social Considerations of Investing

In the midst of a volatile time in the stock market, there’s a lot to consider with any new investment. But Ursu sees a type of investment consideration that’s relatively new and only became prominent in her work as more millennials entered her clientele.

Specifically, millennials who think critically about the companies they buy from.

“A lot of millennials have a different view of money than their parents or grandparents,” Ursu explained. “They believe that money has power, and they want to use that power in productive and good ways.”

Ursu ​​says millennials have more social concerns about how they invest than their parents, and certainly than their grandparents.

“I used to work with their grandparents, and their grandparents would say, ‘I don’t care what my money does, just get me a return,'” he said. “It could go to weapons manufacturing, tobacco or carcinogenic things, and as long as there was a feedback, the older generations were okay with that.”

Millennials are much more aware of what their resources are doing, and so they don’t want to do anything (while investing) that will violate their own social concerns, Ursu says.

Doubts about retirement

One of the common narratives about the young demographic is that between college debt, the rising cost of living, longer life expectancies, and question marks over the future of Social Security, they will not be able to retire as early as their parents or grandparents.

But while there are many different variables that can impact retirement plans and retirement age, Ursu thinks the “millennials will never be able to retire” narrative is a bit of a stretch.

“I’m actually very positive about it,” Ursu said of the millennial retirement outlook. “Millennials have smaller families, so they will have more discretionary income.”

Ursu ​​also points out that millennials make more money than their parents and could see more salaries over the course of their careers.

“Their earning potential and ability to make really big contributions to their financial security and retirement is really strong,” he said. “So if young people are careful with investments, they could actually put themselves in a great position to retire early – earlier than their parents, perhaps.”

In fact, a recent study by Northwestern Mutual shows that — especially in the wake of the pandemic — young Americans are beginning to view early retirement as something attainable. According to the survey, millennials and Generation Z, on average, plan to retire before the age of 60. By comparison, Gen X respondents gave an average expected retirement age of 64.3, while Baby Boomers provided an average age of 68.3. Overall, the average retirement goal age for all demographic groups was 62.6, down from 63.4 a year ago.

Like Ursu, Braund sees no reason why young workers can’t retire early, as long as they’re disciplined in spending, proactive in paying down debt and strategic in savings and investment. Specifically, he points out that employer-sponsored pension plans aren’t leveraged enough by young professionals — and that could ultimately mean a big difference to any retirement timeline.

“People who just got a job often think, ‘Okay, I’ve got this job, now I have to pay off all this debt,'” Braund said. “And you have to repay that debt. But for some younger people, it’s 100% of their focus.

With most employers matching pension contributions, Braund says it’s an opportunity to get some free money.

“You have to take advantage of it, and the sooner you do, the better,” he said. “Because that money grows and accumulates on itself, and the power of accumulation is that the longer you have invested it, the better off you will be.”

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