Friday, November 20, 2015

Our Financial Priorities as Young Adults .... Let's Get Them Right

Millennials are those individuals who were born between 1981 and 1997. Thus, their approximate ages are from 18 to 34. 

Generation Xers were born between 1965 and 1980. Thus, they range in age from 35 to 50.

With that in mind, let's view the contrasting savings priorities of the parents belonging to these two adult groups.

Why millennial parents get their financial priorities so wrong offers this solid advice to the Millennials:

"Millennial moms and dads have misguided savings priorities.

Millennial parents rank saving for their kids’ college as their No. 1 savings priority, a move that many advisers say isn’t, in most cases, smart. Generation Xers, on the other hand, put saving for retirement as the No. 1 priority, according to Fidelity Investment’s 9th annual College Savings Indicator, a nationwide survey of 2,470 parents (with a household income of $30,000 and up) with children aged 18 and younger who are expected to attend college.

Millennial parents savings priority No. 1 savings priority Named among top 3 savings priorities
1. College 21% 63%
2. House / Mortgage 20% 48%
3. Emergency fund 17% 53%
4. Retirement 16% 51%
5. Pay off credit card debt 14% 35%
6. Pay off own student loans 7% 24%
7. Future health care costs 5% 25%
Gen X parents savings priority No. 1 savings priority Named among top 3 savings priorities
1. Retirement 26% 67%
2. College 19% 57%
3. House / Mortgage 16% 44%
4. Pay off credit card debt 16% 38%
5. Emergency fund 16% 55%
6. Future health care costs 4% 26%
7. Pay off own student loans 3% 14%

Furthermore, it’s not just that millennials (born 1981 - 1997) prioritize saving for their kids’ college, but also how they’re doing it: Nearly three in four millennials ages 30 to 34 have put away at least some money for college, compared with just 58% of Gen Xers (born 1965- 1980) who had done that when they were in that age group.

But while the kids may appreciate a padded 529 plan when they hit 18, that doesn’t make it a smart financial move for millennials, experts say. Instead millennials — unless they are one of the few who has enough money to fund all of their goals fully — should focus on paying down high-interest debt, building up emergency savings and saving for retirement rather than paying for their kids’ college, says certified financial planner Catherine Hawley. There is more flexibility with funding college than for retirement, she adds. “You can’t borrow or get a scholarship for retirement.”

More specifically, if money is tight and you have high-interest debt, Sweeney says you should at least put up to what your employer matches into your 401(k) (that’s free money so you don’t want to forgo that) and then work on paying down your high-interest debt as quickly as possible, even before you put more into retirement savings, says John Sweeney, the executive vice president of retirement and investment strategies with Fidelity Investments. “Often the interest rate is in the teens, but virtually no investment we find will give you a return higher than the cost of that debt,” he explains.

So why are millennials saving for college instead of retirement? “Their generation had so much debt themselves,” Hawley says. “They wish their parents had put away for their college.”

Indeed, a Financial Finesse survey showed that the average student loan debt burden for people in their 20s is up 60% since 2005. And this has seriously impacted their lives: A survey released this year by financial services company Bankrate found that 56% of people with student loan debt in their 20s had put off a major life event like buying a car or home because of the burden of paying down these loans; fewer than half of older Americans with student loan debt had done that."

Summing Up 

Saving money for our future financial health and well being is a great and necessary component of adult life.

So is avoiding accumulating a boatload of burdensome high interest debt. 

After those two conditions are met, then we can talk about how to invest those 'net' savings wisely and for the long haul in a diversified portfolio of blue chip dividend paying and growing stocks.

But not until then.

That's my take. 

Thanks. Bob.

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