Boomers vs. Millennials: Common Financial Differences
It’s common for the previous generation to think that the younger ones are less responsible, spend more, save less, and the list goes on! In the case between the grandparents and grandchildren, or Boomers versus Millennials, the Millennials are getting it right in money management, according to Pew Research. The Millennial generation has experienced the same type of economic conditions as their great grandparents did at relatively the same age. There are differences in saving for retirement between the generations as Boomers had retirement plans and consistent employment, whereas Millennials are likely to have more than one job (part time equals full time) with no retirement plan, and inconsistent employment.
Boomers entered the work force during the retirement pension era that was replaced by the 401(k) era. They were lucky in that they had retirement accounts that were automatically set up with contributions via pension money. However, they were a generation that felt satisfied by title, or entitlement and the corner office, versus work that was meaningful. This was the ‘keep up with the Joneses’ generation and their spending led to the credit card industry’s birth.
Research studies are concluding that Millennials are spending less, more financially responsible, prefer to pay in cash, and have debt related to education loans and not credit card spending. The Millennial generation is renting versus buying due to economic insecurity in the job market. They are not able to find jobs in their profession, and are taking less paying jobs in order to make ends meet. They are not paying for items that are considered ‘extras’. Young Money Magazine wrote an article on the generational differences that includes Millennial’s parents and grandparents you may find entertaining. Here is a quick comparison of fun differences between the two generations:
- Land-Line & Cell Phone
- Cable/Satellite TV
- Dress up for Work
- Dining Out
- Buying With Credit
- Cell Phones
- Internet TV- Hulu, AppleTV
- Jeans and Casual Wear
- Eating at Home
- Paying in Cash
Additional information regarding spending and saving between the generations can be found in the 17th Annual Transamerica Retirement Survey. Regardless of your income or what generation you belong to, having a saving and spending plan is important. This goes for both Boomers who may be retired, and Millennials, who are early into their careers.
Refinancing Debt: Is This a Good Idea?
How often have you walked into your bank and been ‘invited’ to open a new credit card, or better yet ‘refinance’ your debt? The opportunity to ‘participate’ or receive a ‘special offer’ happens every day not only at banks, but at other places such as department stores. We have become accustomed to accepting offers of debt, and seldom realize that places that should help us eliminate debt are actually working against us.
Banks own credit card companies, and have a stake in the debt game is very profitable for them. Statistics show Americans are taking on more debt in order to make ends meet due to a variance between wages and the cost of living. With increasing costs for food, medical, and housing, banks have adjusted qualification standards in order to offer debt solutions to more people. What is surprising is how easy it is to refinance debt with debt!
Prior to considering a credit card ‘refinance’ by opening another account and transferring debt to it, evaluate if this makes sense for your personal situation. If you anticipate carrying debt for 1-2 years, it probably makes more sense to stop spending and start a plan to pay off your debt.
If you’re considering selling your house in the next 2-3 years, refinancing in order to access equity to pay off debt doesn’t make sense. Tying up your equity eliminates the chance to use it to purchase another property, and also increases the likelihood of limited negotiating power when you’re stuck at a ‘reserve’ price in order to cover your debt when you sell.
When you’re offered the opportunity to refinance your debt at your local financial institution, ask the solicitor to ‘work the numbers’ for you to evaluate if this makes sense for you. If they can’t explain features, benefits, and conflicts to you regarding the transaction, you probably should not consider it. For an interesting article and statistics on credit card and other types of debt Americans carry, visit Nerd Wallet’s 2016 survey.
Self Employment and Retirement Readiness
Self-employment is a growing trend world-wide and in the US. The desire to work for themselves, being able to designate working hours, and the perks of flexibility when they work is part of the reason many choose to be self-employed. However, there are growing statistics that show many are forced to start their own business due to ‘down-sizing’ by American companies, and the ability for companies to hire ‘contracted labor’ for what they need versus hiring full time and paying benefits.
Necessity has created an entrepreneurial opportunity for many to become self-employed. However, the US lacks in self-employment as only 6.5 percent are self-employed, in comparison of 1 in 3 people being self-employed in other countries, such as China, Brazil, and Turkey. The trend in the US is that we will see an increase in the number of people becoming self-employed due to technology advances eliminating workers, longer working years past age 69 in comparison to previous generations, and the slow recovery of business growth resulting in new positions with wages above minimum wage.
Being self- employed creates an interesting scenario when it comes to benefits others receive through their full time employment, such as health insurance and a retirement savings plan. Most countries rely on a three system approach to retirement savings: Governmental savings plans, employer savings plans, and personal savings. The alarming trend in the US is that self-employed individuals are not participating in these same savings plans; they are only paying in to the governmental plan which in our country is Social Security. Many self-employed have not set up their own retirement savings plan, such as a solo 401(k).
Many self-employed have irregular incomes, which makes it difficult to save on a regular basis. In some situations, individuals have been self-employed for many years, building a business which they plan to liquidate upon retirement to provide themselves with retirement assets. In either situation, planning needs to take place in order to ensure there are assets to use for retirement. Since the self-employed have typically had ‘to do it themselves’, they often feel they need to plan themselves and are not consulting with financial professionals.
Regardless of what your age and how many years you have been self-employed, it’s important to meet with an advisor who can assist you in planning for your future. For additional information on the self-employed and retirement readiness, visit the Global Retirement Survey. Feel free to contact me regarding setting up a self-employed retirement savings plan, or reviewing the one you have in place.
A Job Relocation in 2017? Compare Costs Before You Accept That Offer
With the new US Administration enticing American companies to relocate jobs back to the US, you may be hoping to benefit and are tempted to start looking for a new position in a new geographical area. The recent economic ‘feel good’ atmosphere (according to analysts) may be an indication of growing job opportunities. As you interview and are possibly offered a position in another area of the country, it is important for you to do your research to see if that opportunity is worth it economically. A higher salary is no indication that you will bring home more money.
Considering the cost of living, medical care, and if you will receive on-going raises beyond the cost of living is important. Secondly, do a cost of living analysis on the area you’re intending to relocate to. Compare housing, electricity, food, medical care, and any associated expenses similar to what you have now. All of these costs can vary greatly depending on the area of the country you move to. For example, utilities and food tends to be more expensive in northern regions due to transportation costs (food, pipelines) and housing tends to be more expensive in warmer climates if the area is a ‘more desirable’ metro destination. Check the CNN Money Relocation Calculator to help you determine costs by comparing that geographic area to where you live now (US metro areas in each state are included in the latest data calculator).
If you do relocate, take your former employer retirement savings plan with you by rolling your assets into an IRA. As people age and have more employers, they tend to forget about 401(k) plans at former employers. Due to the costs of keeping plans of terminated employees, many employers automatically roll those accounts over to another custodian you may have no control over. Contact me if you have old 401(k) plans that need to be combined, or are anticipating moving and would like a financial planning consultation prior to relocating.