An article on Friday in The Times focuses on the financial challenges facing younger Americans, who are accumulating wealth at a much slower pace than their parents did.
With stagnant wages, a tough job market and heavy student debt, American under about age 40 have accrued less wealth than their parents did at the same age, even as the average wealth of Americans has doubled over the last quarter-century, according to a new study by the Urban Institute.
The situation is of concern to financial planners and advisers because of what they call the “time value” of money — that is, the earlier you start saving and investing, the more time you have for your assets to grow. If you get a later start, you’ll have less time to catch up. So by getting behind now, young people may find themselves short when they near retirement.
Greg Dorriety, a certified financial planner near Mobile, Ala., said he often advises young adults who are the children of his older clients, and he stresses with them the need to start saving — even if it’s as little as $10 a month, if money is tight — to get in the habit. With the uncertainty about the future of Social Security benefits, he said, “There’s a high likelihood they’re going to be personally accountable for their own retirements.”
Younger people who are able should do the obvious things like contributing as much as they can to their 401(k) or profit-sharing plans, he said, if their employer offers it.
He also advises younger adults with higher incomes not to aim to buy a big, expensive house right away, because they are likely to move around before settling down. Ditto for fancy cars. But if they want the cars, he said, he urges them to buy “gap” insurance, which will cover the difference between what they owe on their car and what it’s worth, if the car should be totaled in accident.
Timothy Maurer, a financial planner and personal finance educator in Baltimore, said younger adults often get caught up in instant gratification, buying cars, furniture and electronics on installment debt as soon as they get their first job and apartment. When added to their student loans, the burden can become crushing, leaving little for savings. He said he encouraged young people to reframe the way they think about debt and savings.
For instance, he said, he suggests taking only as much college debt as they can reasonably expect as their first year’s salary in their chosen field. And rather than simply trying to save 10 percent of their salary indefinitely, he advises saving more — 20 percent — when they are in their 20s. When they get married and have children, it will get harder to save, and they may struggle to save even that 10 percent.
Jonathan Geiger, an adviser with Charles Schwab in Manhattan, said he urged younger clients to have a written budget: “Know what your expenses are.” If your cash flow isn’t covering your expenses, you need to cut back — perhaps on treats like dining out and daily coffees. He said he also recommends that young people pay down high-interest rate debt, like credit card balances, first, and consider transferring the balance to a card with a lower interest rate if they can’t pay it off monthly. If clients work for a company that doesn’t offer a workplace retirement plan, they can consider an I.R.A.
If you are under 40, let us know if you are able to save and invest for the future — or is it too difficult right now?
Article source: http://bucks.blogs.nytimes.com/2013/03/15/financial-tips-for-younger-people/?partner=rss&emc=rss
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