Every generation has its financial issues. Learn what the most common money mistakes plaguing millennials are and see if there’s anything you may be guilty of on the list.
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Like every generation before them, millennials have gotten more than their fair share of criticism, and much of it relates to their financial habits. According to the naysayers, millennials don’t save enough because they’re blowing their money on travel, lattes, and even avocado toast.
I’m an avocado-eating millennial myself, so many of the played-out talking points are silly to me. But to be fair, there are certain money mistakes that hold back a large portion of millennials.
1. Too much debt -- and not just student loan debt
Debt is commonplace among millennials from age 25 to 34, with the average amount being a staggering $42,000, according to Northwestern Mutual's 2018 Planning & Progress Study.
That would make sense if it was student loan debt. Going to college is more important than ever, and the costs of attending have gone up and up.
Only the biggest source of debt among those older millennials isn’t student loan debt, it’s credit card debt. That’s much more dangerous, because credit cards have significantly higher interest rates than student loans.
2. Poor spending choices with credit cards
The words “credit card debt” often bring to mind an image of someone maxing out their cards buying jet skis or designer clothes at Saks. In reality, the most common cause of credit card debt for all Americans, millennials included, is simply making ends meet.
Millennials are, however, more likely to cite eating out and shopping for clothes as causes of their credit card debt. Even though neither of those are bad in moderation, it’s easy to overdo it if you don’t monitor your spending carefully, and they’re both areas where millennials in debt could afford to cut back.
3. Not saving enough
Millennials are a mixed bag when it comes to saving money. A GOBankingRates survey reported that the number of younger millennials (ages 18 to 24) and older millennials (ages 25 to 34) with $10,000 or more saved jumped 5% from 2016 to 2017.
That’s great news. Unfortunately, the majority of millennials in both age ranges had less than $1,000 saved. Approximately 46% of those 18 to 24 and 41% of those 25 to 34 had nothing at all saved.
It can be difficult to put money away when you’re just starting your career, but a lack of savings leaves you susceptible to any emergency expense.
4. Choosing the wrong investments
Once again, there’s some good news and some bad news regarding millennials here.
On a positive note, the majority of young workers save for retirement. The problem is that approximately 42% of millennials focus on conservative investments, such as bonds, money market funds, and even cash, while staying away from stocks. It’s understandable given how many millennials came of age during the Recession, but that doesn’t make it wise.
Although stock market crashes can happen, stocks still average an 8% return annually after accounting for inflation. That’s far better than you’ll get with bonds or a savings account.
Compound interest is the most effective way to build long-term wealth, and to maximize that interest, you’ll need to invest in stocks.
5. Failing to take care of their credit
LendEDU found that almost 58% of millennials have poor or fair credit scores, and millennials have much lower average credit scores than older adults. While you could attribute this to the fact that it takes time to build credit, the real problem millennials have is a lack of knowledge about credit scores.
A large portion of millennials believe harmful credit score myths, as 44% said that increasing credit utilization improves your credit score, and 36% thought it was good for your credit if you maxed out your credit card, but paid the bill on time.
Neither of the above is true, and following those misconceptions can have long-lasting repercussions. A subpar credit score makes it harder for millennials to qualify for the best credit cards, low-interest loans, and apartments. The bottom line is that bad credit can cost you money and make your life more difficult than it needs to be.
Despite the negative stereotypes, millennials aren’t terrible with money. Overall, the generation does certain things well, but also has some bad habits, knowledge gaps, and misguided financial beliefs, in part due to what was going on in the world when they entered adulthood. By being aware of their generation’s money mistakes, millennials can focus on correcting them or avoiding them entirely.