Financial Experts Say This Is Why Millennials are Blowing It With Money
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What am I doing wrong? That’s what I always want to know.
Sure, I like positive reinforcement, too: Don’t worry, you’re doing a great job as an employee/spouse/parent/human being.
But, good vibes aside, I need to know what I’m doing wrong. What do I stink at?
This also applies to managing my money. What could I be doing better? What am I not thinking of? What are my blind spots?
No one tells us this stuff, you know? Especially when we’re young and just starting out.
We need money advice!
That’s why The Penny Hoarder asked a panel of eight whiz-bang financial advisors this question:
What is a common financial mistake that beginners make?
On Being Duped by Insurance Salesmen
“The biggest mistake I see millennials making is being duped by insurance salesmen. Everyone needs insurance, but a very small subset of young people need the insurance that is sold by most ‘financial advisors.’”
“ALWAYS get a second opinion from someone [who] does not focus on life insurance before moving forward with any recommendation.”
— Andy Yadro, financial planner with Googins Advisors in Madison, Wisconsin
Penny Hoarder tip: Even if you don't have a family yet, you might still consider a basic life insurance policy, which could be useful for paying off your funeral, mortgage or car loans.
If you’re young and mostly healthy, consider purchasing term life insurance online from Ethos. It partners with a major A-rated life insurance carrier to provide policies for a low price. For example, $30 a month could get your family $1 million of coverage.
Anyone, including independent contractors, can secure term life insurance through Ethos without a medical exam or extensive paperwork; just fill out a digital application.
If you prefer more options, head over to Policygenius. The search engine allows you to compare life insurance with instant quotes. Once you find the right fit, you can apply right online.
On Credit Cards
“Accruing credit card debt is by far the biggest financial mistake young people will make. They have grown up with credit cards as a norm, and don’t understand the concept of the interest and the need to pay those bills off monthly.”
— Karen Lee, president, Karen Lee & Associates, Atlanta, Georgia
Penny Hoarder tip: Pay off credit card debt religiously every month to avoid falling behind and getting swamped by interest charges. Plus, with a cash-back rewards card, you can get paid for every dollar you spend.
Here’s an option we like: It’s the Chase Freedom Unlimited card. Its claim to fame? You’ll earn an unlimited 1.5% cash back on all your purchases. Plus, if you spend $500 in your first three months of opening the card (hi, groceries), you’ll pocket a $150 bonus.
There’s no annual fee, and the cash-back rewards don’t expire. We checked Credible’s annual rewards calculator, and it estimates $417 in annual rewards based on our spending habits.* (You can enter your unique spending habits and see what you’d earn, too.)
Get signed up — and 0% intro APR for 15 months — here.
*Annual Rewards amounts will change based on the amounts you enter. The monthly spending category names and definitions may vary among issuers, and categories may not align one-to-one.
The information for the Chase Freedom Unlimited card has been collected independently by The Penny Hoarder. Opinions expressed here are the author's alone, not those of the credit card issuer, and have not been reviewed, approved or otherwise endorsed by the credit card issuer. The Penny Hoarder is a partner of Credible.
On Investing Early
“Beginning investors are presented with literally a once in a lifetime offer. They can start their investing early and allow the benefits of compounded growth to work for them.”
“We speak with people every week who say that they want to invest in such a way as to avoid risk, so they’re thinking a CD or U.S. savings bond. We like to point out that taking moderate risk at the beginning … is likely to be the least risky approach over their entire lifetime.”
— Warren A. Ward, WWA Planning & Investments, Columbus, Indiana
Penny Hoarder tip: One way to start investing early is to use an app like Acorns. Once you connect it to a debit or credit card, it rounds your purchases up to the nearest dollar and funnels your digital change into a savings or investment account. Because the money comes out in increments of less than $1, you’re less likely to feel an impact in your bank account.
On Not Cashing Out Retirement Funds
Common financial mistakes young people make:
- Leasing cars vs. buying more affordable used cars
- Overspending on lifestyle without paying yourself first
- Using credit cards to make purchases you can’t afford
- Taking on too much student loan debt relative to starting salary of future occupation
- Not taking full advantage of employee benefits like 401(k), HSA, FSA, tuition reimbursement, matching charitable donations, etc.
- Buying a home based on what the bank pre-qualifies you for, not what your budget allows
- Borrowing from retirement accounts for purposes other than retirement
- Cashing out old retirement plans with small balances when changing jobs vs. rolling them over
— James M. Matthews, managing director of Blueprint, a financial planning firm in Charlotte, N.C.
Penny Hoarder tip: Always, always roll over that 401(k) from your last job! That stuff is gold! Never cash it out. An online robo-advisor like Blooom can help manage your 401(k) for you because, chances are, it can probably be doing more for your retirement.
“Procrastinating saving for retirement even when they know they need to start early. I've noticed that millennials are a generation comfortable with digesting large amounts of content online. When we have a question, we Google it. We’re used to finding our own answers and tend to hold a ‘do-it-yourself’ attitude.”
“With financial and investment decision-making, however, this can become a crutch — there is so much information to wrap your head around that it's easy to suffer from ‘analysis paralysis’ and keep putting off investing because you want to do it perfectly.”
— Justin Chidester, owner of Wealth Mode Financial Planning in Logan, Utah
Penny Hoarder tip: Keep it simple. Stash, a super basic investing app, automatically pulls a few bucks from your checking account each week. You can invest your money in a set of funds reflecting your beliefs, interests and goals. After you set your automatic investment choices, it does everything for you for $1 a month (for balances under $5,000). No paralysis from analysis.
On Retirement Plans
“Failing to take advantage of company retirement plans is a common mistake that younger people make. Many plans will offer matching contributions when an employee contributes to a 401(k) retirement plan. For those who participate, this is an immediate and substantial return on their savings investment.”
— Kevin Gahagan, chief investment officer, Mosaic Financial Partners, San Francisco
On Saving Enough
“They don’t save enough. They should work on hitting at a minimum of 15% of their GROSS income. I suspect the millennials are going to live longer than any other generation to date. This is going to require them to work longer and save more.”
— Brett Anderson, president, St. Croix Advisors in Hudson, Wisconsin
Penny Hoarder tip: Not all of us are in a position to save 15% of our gross annual income. But most of us could probably be saving more.
On Not Getting Started
The biggest mistakes young people make are:
- Not taking full advantage of a company 401(k) match, as many are giving up free money!
- Not starting with investing. My suggestion is to start by investing in a target-date age based fund, which corresponds to the year of retirement (or age 65).
— Ben Westerman, senior vice president, HM Capital Management, St. Louis
There. Now you know everything you’re doing wrong. Enjoy your free money advice.
Time for some positive reinforcement: You made it to the end of the article! You’re obviously very smart and focused and have a bright financial future ahead of you!