You've probably relied on your parents to manage your financial matters for years, and you may not know more than a few basic things about personal finance. Then you graduate from college, and suddenly you're responsible for all kinds of important financial decisions. If you want to manage your finances responsibly, you'll need to overcome the following challenges.
"The crying need for more financial literacy in Gen Yers cannot be overstated," says consumer finance expert Kevin Gallegos, vice president of Phoenix operations for Freedom Financial Network. "The good news is that managing finances is not an innate skill, but something that is learned like math, reading and writing."
Unfortunately, financial literacy is rarely taught in schools. Gallegos says that Gen Yers must take the initiative to educate themselves about topics such as budgeting and living within one's means, paying bills on time, managing credit and debt, making regular contributions to savings, tackling student loans, and planning for retirement. Following just one good online or print resource can provide the foundation to learn these basics, he says.
SEE: The Importance Of Your Credit Rating
Repaying Student Loans
In an age where an undergraduate degree no longer seems to be good enough, student loans have become the biggest challenge facing many young people.
"There's so much pressure to go to a good school and compete for limited jobs that a lot of students are taking out expensive loans to finance an education that won't pay for itself no matter how good a job they land after graduation," says attorney Shane Fischer of Winter Park, Fla. "If I knew then what I know now, I wouldn't have gone to an expensive private school and would have opted for the less prestigious public school."
According to FinAid.org, a student financial aid information website, more than half of graduate students borrow to finance their educations, and their average cumulative debt just from grad school is around $31,000. Almost all law students - 88.6% of them - borrow. These students incur an average of about $80,000 in debt. Students pursuing professional degrees fare similarly, with 86.2% borrowing and an average cumulative debt of more than $87,000. Undergraduate debt adds roughly another $10,000 to these students' debt loads.
SEE: Student Loans: Paying Off Your Debt Faster
Learning to Invest and Take Risks
The economy's performance over the last few years has had a major impact on Gen Yers who haven't been able to find jobs or who have watched their parents' investment returns disappear.
"Unfortunately, the economic downturn has caused many young adults to fear investing in the stock market," says Rachel Cruze, professional personal finance speaker and daughter of financial expert Dave Ramsey. "But you have to think longterm when investing in the stock market. The past few years have been rough, but over time the stock market has made money. If you begin investing early and often you'll be able to build wealth through your investments," she says.
Brian Ullmann, CFP and wealth manager at Ford Financial Group, an independent advisory firm in Fresno, Calif., also says that market turmoil has impacted 20-somethings' investment strategies.
"Our younger clients now have a much lower tolerance for risk and have more conservative portfolios. In fact, we have clients in their 20s who wish to have their portfolio positioned for someone twice their age," he says. "One of our concerns is that this new, more conservative positioning for Gen Y clients is a permanent change and one that could lead them to miss out on opportunities in the future."
SEE: What Is Your Risk Tolerance?
Overcoming Pressure to Follow a Worn-Out Path
"One of the biggest hurdles is overcoming societal pressures," says Matthew B. Brock, CFP, senior partner and owner of Divergent Planning in Bethesda, Md.
Brock says Generation Y is constantly being told that there is a right way to plan financially. This advice often comes from an older generation whose financial status doesn't show that their way is the right way.
"Young adults no longer want to keep up with the Joneses because the Joneses lost their jobs, lost their house and may never retire," Brock says.
Gen Yers' choices reflect their preference for freedom and experience over property ownership, he says.
"Most young adults are waiting longer to get married, waiting longer to move to the suburbs and waiting longer to have kids," says Brock.
Renting means they can leave a job and move to another city on a whim, save up and then take a few months off to travel, or quit a job to start a company. The American Dream does not always include buying a house, a nice car and earning a high salary. It means being free to do what makes you happy.
"Older generations need to recognize younger people may have a better idea of what happiness means than they ever did," he says.
The Bottom Line
To overcome the challenges they face, today's young adults need to educate themselves about personal finance, manage the student loan debt they've already incurred, avoid or minimize additional debt, learn basic investment skills, and not be afraid to choose their own paths. Also, as youth are so often advised, they need to practice patience.
"Remember that you're still young and be content with what you have," says Cruze. "Work hard so that you're able save up to make large purchases that you can afford without having to pay interest."
SEE: Top 5 Books For Young Investors
Mutual Funds & ETFsExplore detailed analysis and information of the top three Swiss exchange-traded funds that offer exposure to the Swiss equities market.
Personal FinanceLanding a job as a financial analyst takes study, strategy and a lot of hard work. Here's how to hone your competitive edge.
Personal FinanceIf you're deciding whether to get a degree abroad, first do your research and talk to alumni who have completed the same program.
Mutual Funds & ETFsLearn about some of the most popular and best performing mutual funds that offer investors exposure to the important emerging market economy of China.
Investing BasicsAn unrealized gain occurs when the current price of a security exceeds the price an investor paid for the security.
Investing BasicsRisk-adjusted return is a measurement of risk for an investment or portfolio.
Mutual Funds & ETFsFind out about the iShares Agency Bond exchange-traded fund, and explore detailed analysis of the ETF that tracks U.S. government agency securities.
Investing BasicsLearn about 10 companies loved by the modern Yuppie, including how this demographic's impressive buying power has boosted these companies' earnings.
ProfessionalsRetirement is creeping closer for clients in their 30s and 40s. It's a great segment for financial advisors to tap to build long-term client relationships.
Home & AutoRoofing your home is very important, that’s why you should choose a roof specifically designed to handle your area’s climate.
A security that tracks an index, a commodity or a basket of assets ...
The Compound Annual Growth Rate (CAGR) is the mean annual growth ...
A metric used in capital budgeting measuring the profitability ...
A performance measure used to evaluate the efficiency of an investment ...
Generation X or Gen-X is the name given to the generation of ...
An auto insurance policy discount available to young drivers ...
If an investment fund has a high turnover ratio, it indicates it replaces most or all of its holdings over a one-year period. ... Read Full Answer >>
Asset management utilizes two main investment strategies that can be used to generate returns: active asset management and ... Read Full Answer >>
The percentage of a diversified investment portfolio that should consist of large-cap stocks depends on an individual investor's ... Read Full Answer >>
Discretionary income is the money left over from your gross income each month after taking out taxes and paying for necessities. ... Read Full Answer >>
An investor should include an allocation to the telecommunications sector in his portfolio, because telecom offers an investor ... Read Full Answer >>
Some of the most popular and best-performing mutual funds that do not include any 12b-1 fees in the expenses charged to fund ... Read Full Answer >>