Yesterday’s To Do List for having a healthy financial future was pretty standard: go to school, get a job, save as much as you could, buy a house, save some more, invest some of your savings in “smart” business entities, and save even more. Today’s To Do List for a healthy financial future is anything but standard: going to school may not be necessary or even an option, getting a job may mean getting two jobs due to flat wages, and on and on. The point is, according to Brian Jacobsen, chief portfolio strategist with Wells Fargo, “…the rules are always changing. Every generation has had to deal with changes in technology, cultural norms, politics and economics.”
The Great Recession fundamentally changed those rules for this generation and for their parents. People are more risk averse, jobs do not last forever, homeownership is no longer seen as a low and/or no risk investment. But whatever the rules, key elements that contribute to healthy financial futures include debt, housing, investing and retirement. Let’s look at these elements one at a time.
- Debt – Young people just beginning their adult lives now have more debt than their parents had at the same age. The cost of education and student loans have and continue to skyrocket to the tune of $40,000. on average. Experts encourage anyone to not take out more debt than is doable regardless of a current or future profession. Rebecca Neumann, professor of economics and personal finance at UWM, advises her students and anyone who will listen to pay off their debt as quickly as possible. “It’s like writing yourself a check because it offsets the effects of compounding interest.” No amount of debt is “just a little.”
- Housing – Before the recession, 2/3 of all adults owned a house. Home values appreciated by double digits every year. Today, it’s a different story. “Even though home ownership is still a solid decision to make because housing appreciates at least at the rate of inflation, the biggest drawback to owning is being anchored to one location. That anchor makes it difficult to take advantage of a career opportunity in another location,” said Professor Mark Eppli in the finance and real estate programs at Marquette University. Whether owning or renting, Eppli encourages his students to keep housing costs under 30% of their incomes whether they are owning or renting.
- Retirement – Brenda Campbell, president and CEO of Make a Difference Wisconsin which works in schools to educate teens about finances, said, “…responsibility for healthy finances rests with individuals more than ever before.” Pension plans are increasingly scarce. There are fewer full time jobs with benefits. Campbell encourages people to set up a Roth IRA under all circumstances.
- Investing – It turns out that 90% of Wall Street investors are the top 10% of the wealthiest in the country. A 2015 report by the Black Rock money management giant showed that 46% of young people believed that investing is “…too risky. The time isn’t right now…(but) it’s on my radar.”
**We are not tax advisors, accountants or investment professionals. Please seek out the proper, professional advice for your individual circumstances.