Millennials may be making mistakes even as they come to trust financial advisors more than their beloved algorithms. One of the main mistakes is that Millennials are focusing too much on homeownership and not enough on retirement readiness.
Millennials are in a vulnerable spot in investing right now. Studies report that more than half of all millennials think the American Dream of owning a home and being debt free is reachable, yet are under woefully underprepared for retirement. Millennials may be making mistakes even as they come to trust financial advisors more than their beloved algorithms.
One of the main mistakes is that Millennials are focusing too much on homeownership and not enough on retirement readiness. Nearly a quarter of Millennials indicated that they would borrow against retirement savings to purchase a home. Of those who have purchased, nearly one third did use retirement funds for their purchase. And close to half of those Millennials who have dipped into retirement funds wouldn’t make the same choice again.
Other mistakes Millennials are making include using credit cards too much for purchases, with more than one third using them regularly. And of those that use them regularly, more than one half were homeowners. Some advisors credit this over use of credit cards but penchant for homeownership to a lack of knowledge in the basics of personal finance and how schools have strayed away from covering these topics. This could also be because of the sheer volume of investment advice in the media. Millennials may be swayed to follow one financial leader for a few months, and another for months after that. They may adopt Elizabeth Warren’s budgeting system and make decisions based on that, and then change to a wholly different system, leaving their plans disorganized or chaotic.
Overuse of credit cards could also be caused by another Millennial mistake involving failing to use a budget. While many Americans, more than one-third in total, fail to use a budget, Millennials may think that relying on this basic of personal finance is overly simplistic or too restrictive. Experts suggest to those working with Millennials that they emphasize that budgets ensure that priority items like housing and essentials are secure.
Millenials also are failing to use the market for investments, even though they feel comfortable using different investment products. This could be because of their recent experience living through the recession. Nearly two thirds of Millennials report that they are overly cautious with investing because of that experience.
Millennials use of online systems and apps may also lead them to miss out on individual benefits, like tax deductions and credits for education. They may also be making mistakes in claiming deductions for side work, like yoga clothes for their once a week classes, or failing to report income at all. While failing to take tax deductions is a missed opportunity, failing to report income from side jobs opens up the possibility of audits by the IRS.
Finally, Millennials make some specific mistakes as to accounts and investments. They may be saving, but using savings accounts instead of higher interest options like 401(k)s or IRAs. They may also be failing to start saving at all, missing out on the benefit of compounding interest, because they feel crippled by student loan debt. Those that do have retirement accounts may have grossly underestimated how much they’ll need to be retirement ready.
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