The 6 Biggest Financial Challenges Millennials Face – Episode 211

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[00:03] Welcome to the Prosperity Podcast, fresh alternative personal finance talk for independent thinkers who prosper outside of Wall Street. Here’s your host, bestselling author, Kim D.H. Butler and No BS Money Guy, Todd Strobel. Hey everybody, welcome back to the Prosperity Podcast. This is No BS Money Guy, Todd Strobel. Once again, we have bestselling financial author and our co-host, Kim Butler with us today. And I’ve been out on the internet checking out some websites and I found an interesting article and it’s entitled, How Millennials Can Overcome Their Six Biggest Financial Challenges. This was written by Brett and Kate McKay. If you want to go on the internet, you’re welcome to search this out and it’s interesting

[00:56] because there’s a lot of things that are being attributed to the millennials as being a reflection of the baby boomers. In other words, you know, they did have not grown up, even though I believe it’s a more prosperous time. There has been a lot of financial uncertainty that has been in the household and you don’t have quite as much exuberance. So you’ve got a little bit more of a skeptical attitude and you know, they really think that that skepticism is going to be a healthy thing as far as teaching people to really save instead of spend. How’s that? I think that’s well said. I’ll be curious to hear what these six things are. All right. This is, it has to do with something called the Strauss How generational cycle

[01:54] theory, and it’s how members of Generation Y parallel and share traits with young people who came of age during the Great Depression. So challenge number one, millennials are financially illiterate. According to the survey, only 24 percent of generation wires demonstrate basic financial literacy in regards to stuff like how mortgages or the stock market work in a survey of millennials already saving for retirement. A third say they were not sure how much of their money was invested in stocks or bonds. So it is so true that not just millennials in Gen Y, but our entire population does not really understand how mortgages work and often has questions around the stock market arena. So this is just evidence that it’s not taught in our schools.

[02:53] We’ve talked about that before. A lot of people are well aware of that. The few financial things that are taught are things like balancing your checkbook, which I don’t even know that most people with online banking bother doing that anymore because they’re able to see real time what is in their account. And then furthermore, you have just such a really a financial institution viewpoint from anything that is taught in the schools. In other words, the banks or the insurance companies or the stock brokerage companies that provide the various things out there that are being taught in the schools are heavily weighted towards that particular industry. And I find just good general financial education either completely missing or

[03:38] frankly having a lot of wrong material in it, which is scary. And one of the reasons why we wrote the Busting the Interest Rate Lies books is just starting right there. Most people, even financial advisors, don’t really understand how to calculate interest rates. One of the lines in here is you can’t fight a problem you don’t understand. Very well said. And you also sometimes, I think, are inside the problem so much that you don’t really know how to help yourself get out of it, especially when it needs to start in your thinking. So this is just a call to educate ourselves, get information, look up to three different sources, compare them, learn, read, watch videos, listen, whatever it is, so that you can be smarter about your finances no matter

[04:28] your age, because finances affect absolutely every single thing in our lives. They affect every single one of us, no matter what age we are. And they’re absolutely something that we want to have a little bit of knowledge about. It doesn’t have to be overly numerical. It doesn’t have to be overly technical. But being unwise in this arena, frankly, is just as bad as being unwise around the health arena. People have learned that, oh, my gosh, I can’t drink Coke and eat chips all day and feel very good. Well, oh, my gosh, I can’t not save money and spend more than I make and, quote, feel very good from a financial standpoint either. So we have to learn. We have to read. We have to pay attention.

[05:12] We have to try things. We have to talk to others. We have to learn and read and listen and watch some more until we get on a good path that works for us. Now, the recommended solution, there’s a new word I’ve got. I just learned a new word, so I’m going to get to use it here. Their solution is to get an autodidactic education in personal finance. And so I’ve heard the term, but remind me what it means. I have no idea. Just by the context of looking at here, it says research shows that millennials see personal finance as an important subject to learn. 79% think it should be taught in high schools. 73% say it should be taught in colleges. And 70% feel it should be taught by their parents. And unfortunately, it is not generally available in any of the three.

[06:07] Yes, very, very true. So a quick Google search says autodidact is self-taught. And so there you go. That’s what people are realizing that because it’s not taught in the schools, they need to teach themselves. And so again, I will reiterate, make sure that you’re getting your information from a variety of sources so that you’re learning a very broad base, not just what your bank wants you to know or just what your parents’ stockbroker wants you to know or some other one-sided piece of information. And I’ll admit, we have bias. And so, OK, fine, the material that you learn from us. My bias comes from what works. And so I feel like I guess I’ve earned that bias. But without a doubt, you ought to hear the other side and read

[07:00] contrary articles or watch different videos so that you really can learn what you need to know about your finances. And again, I reiterate, it doesn’t need to be heavily numerical or heavily technical. It just needs to be some basic information. And the B solution to this is call for backup. Says the same survey cited a site found that only 12% of millennials have sought professional help with debt management and 27% have sought professional advice on savings in retirement. Now, they’re recommending two different sites and one is the National Foundation for Credit Counseling. And we’ll get your opinion on that in a minute. And then the other is recommending to use a fee-only personal advisor

[07:53] through the National Association of Personal Financial Advisors. So again, bias, and that’s fine. That’s legit. It’s part of everything that we read in the news these days. So this is an area, again, to just get a couple of different opinions. I’m going to add my preferred source for credit help, if you need information around it, is nationalcreditcare.com. That’s a public, available, but profitable company. So in other words, it’s not a nonprofit. And they have a lot of free information on their website. And then, of course, they help people for a fee on a monthly basis. It’s very important that people understand in the, quote, nonprofit arena that nonprofit does not mean no fee. I think a lot of times people head into those nonprofit credit

[08:49] repair centers or places that help you, and they think there’s going to be no fee. Oh, there’s definitely a fee. It’s just that that fee is going to feed the corporation’s coffers and that the corporation doesn’t proclaim a profit. It pays all the people that work there, and they’re building, and whatever else, it pays all those expenses and purposely leaves nothing left over. Again, nonprofit does not mean no fee. But if you need help, absolutely get it. And it’s so worth paying for it, because it’s going to shortcut your learning curve. It’s going to get you back on top more quickly, et cetera. Now, that kind of handles the too much debt problem. Your second part there about knowing what to save for retirement and that kind of thing.

[09:38] Well, first of all, I think retirement should be scrapped. I had the coolest thing happen the other day. My son, Robbie’s 21, and he was talking to one of his friends. They’re both going to be seniors in college this coming year. And she said, you know, I don’t think I really want to save for retirement, because I don’t want to retire. I don’t like the idea, this is Robbie’s 21-year-old friend speaking, of putting the last 20 or 30 years of my life on autopilot. And it sounds boring, this idea of retirement. And I don’t think I want anything to do with it. I thought it was such a great statement by a millennial. And instead, of course, her goal was to just save for her future finances. Now, that’s my term.

[10:25] That’s my alliteration that I like. It’s future finances. And that’s awesome. That’s what she should be saving for. She shouldn’t be saving for this thing called retirement that I believe in our society is going to fall by the wayside anyway. Wow, we spent all that time, and we just got through question number one. You ready for question two? Yes, I am. Challenge number two, millennials are financially fragile. According to a Washington Post survey, 63% of millennials would have difficulty covering an unexpected $500 expense. In the survey conducted by PWC, nearly 30% of millennial respondents reported that they were regularly overdrawing their checking account. Well, I am not surprised to hear that.

[11:15] And so overdrawing your checking account is probably one of the absolute worst things that you can do. It’s horribly expensive. So please, please get yourself in a position where that does not happen. And then, yes, let’s save money. You, as an individual, can save money. You can get together with your friends and save money. You just have to focus on it. It’s like anything in life that’s important to you. And what I love so much is, to use another child as an example, my daughter, who’s 20, she is in school, in the middle of jobs, just total temporary work. She works here for a while, works there for a while, just the nature of their work. And yet, she’s been able to save money, and that gives her freedom.

[11:58] It means that when one job finishes up, she doesn’t have to scramble around, take the first thing that’s offered to her, et cetera. She can take a week or two, find the best job for her, and then go at it again. And it’s just because she saves first. It’s so simple. Take 10% of ideally your net take-home pay, and put it in a bank savings account, and then live on the rest. You don’t even have to budget. Just put the 10% away, and then live on the rest. Challenge number three, millennials are burdened with student loan debt. Oh, that’s a good one. So yeah, they are, and yet, most of them chose to have that debt. Now, arguably, they may not have fully understood it at the time, but they have their schooling,

[12:45] they have their debt, so deal with it. I had student loan debt when I came out of school. You make your payment, you move on. Are there some circumstances where it’s just absolutely impossible? Yeah, and frankly, I don’t have a lot of solutions. We do have a blog post on the Partners for Prosperity site that does give a couple ideas when somebody’s stuck in a situation where the student loan debt’s just more than they can deal with. But for the most part, frankly, they need to stop complaining about it, get it paid off slowly over time. So it takes 10, 20 years. That’s the way it goes sometimes, and move on with their lives. All right, now, the counter moves, they have a couple listed here on this one.

[13:27] Counter move A is to aggressively prioritize and pay down student loan debt. So I disagree with this. Student loan debt is typically between 4% and 7% on an interest rate, and I think that’s a very reasonable rate. We’ve always, for years, used 8% as our dividing line, in other words, 8% or less debt was effective, efficient debt, and debt that was at 8.1% or more is something that you should aggressively prioritize and get paid down. So again, you’ve got these kids, if they’re putting all their extra dollars into their student loan debt, then they don’t have the ability to build savings. It’s so much more important to build savings. And yes, it’s frustrating, because your savings is only gonna be earning

[14:17] maybe 1% or 2%, and your debt is costing, let’s say, 5%, and yet still, it’s so important to build the savings that that financial mishap, if you will, is worth it. And it’s the peace of mind that the savings account provides that that’s, let’s say $5,000 got built up in your savings account. If you paid down your student loan by an extra 5,000, that would not provide you that same peace of mind, because you cannot get that back. So you really wanna put yourself in a position of strength, where you have a savings account and just pay your minimum payments on your student loan debt. Completely agree. Counter move B, which some people are gonna probably shutter at this, is to skip college. And I would say maybe not even so much skip college,

[15:05] but I think it would be, in most cases, a better idea to postpone college till you really got a better feel for what you wanted to do. Absolutely, I don’t have a problem with that at all. There’s some fabulous books out there that talk about a gap year and various programs that you can get involved in. I think working a year or even two is a fabulous thing to do, either in the middle of college or before you begin college. Plus, college is not right for every child. We got into this era where just everybody automatically went to school and it’s not the right thing for every person to do. Child, I use the word child, person, adult, kid, whatever term you wanna use. But my gosh, there are so many people out there

[15:52] that would be better going straight to a trade school or straight to the Peace Corps for a couple years or serve in the military or what have you. So we, as a society, I believe we need to lose the stigma of college and a college degree. And yeah, it’s absolutely right for some people and absolutely not for others. Challenge number four, millennials’ wages are stagnant. Research shows that millennials are earning 20% less than baby boomers did at the same age. Further, the outlook in the near future isn’t great. Not only do individuals who graduate into a recession earn less money at their first job than those who enter the workforce during a boom time, they earn 2.5 to 9% less every year for up to two decades.

[16:42] Well, it’s probably accurate statistics, but it is what it is. So you just have to deal with it. And so here you’ve got, let’s take somebody that did go to college and now they’re gonna get out and earn $35,000 a year, let’s say. Well, they were used to living on probably next to nothing as a college student, and arguably they didn’t have a lot of expenses either, but they need to take the income that they are going to earn for their chosen profession and then figure out how to live on it. Does that mean they cannot live in the nicest apartment in town? Yes. Does that mean they cannot drive the nicest car for their friends? Yes. Does that mean that they can’t go out every Friday night? Yes. But that’s just part of it.

[17:23] They need to figure out how to save 10% and then spend the rest. And I’m a big fan of that. I don’t believe in budgeting. I don’t think it works, but you can save 10% and then spend the rest. And the spend the rest needs to make it happen. It needs to buy the food, pay for the car or the transportation, however you’re gonna handle it and the insurances and the rent and the cell phone and everything else. It’s absolutely doable. It just has to be prioritized. Their counter move A is proactively negotiate a raise and or look for better jobs. So yes, I’m all into the proactively negotiate a raise. That means of course you wanna provide more value first, provide value, provide value, provide value

[18:09] and then ask for the raise. And yes, of course they can look for other better paying jobs, but is that really gonna be the solution? Because maybe in their profession, there isn’t such a thing or maybe they don’t have that ability in their town or what have you. So I think it’s just it’s decisions that get made along the way that have to be looked at. Of course, that’s not easy. If you’re already in say a one year apartment lease and you realize, oops, I picked a little bit too expensive an apartment here. Well, then you got to deal with it or break the lease or sublease it or whatever you can, but it’s fixable. It’s something that you as an individual wanna go after with a vengeance and get your personal finances in the black.

[18:56] Counter move B is be thrifty like grandpa. While you don’t have 100% control over how much you get paid, you are in complete charge of how much you spend or save. I like that. Absolutely. That’s very well said. And yeah, if it’s grandpa or grandma and how interesting that they chose that generation and not parents, then that’s awesome. Then that’s what they should do and that’s their inspiration. And I’ll be grateful when we get back on track as a society where it’s cool to save and it’s cool to have savings rather than our current society where things it’s cool to have a bunch of credit card debt. Challenge number five, rising rents eat up a burdensome amount of a millennial’s income. Because of increasing demand,

[19:48] rents have been going up all over the country, especially on the coast and in the desirable cities like Denver and Nashville. At the same time, incomes have been stagnant. So the rent is eating up a greater portion. The average is 30% of their income. So get a roommate or find a cheaper apartment. They’re making these statements as if a la back to the one right before, they don’t have any control. Yes, they do have control. I’m just having a hard time feeling sorry for the kids that are dealing with this because they have choices. They have the control. And so yes, it might mean you have to drive a little further or maybe you have to have a roommate when you’d prefer not to or what have you.

[20:33] But to say rents are going up and taking a larger portion of pay, well, then fix the problem. Find a way to provide more value and earn more or get a second job or a cheaper apartment. The other possibility is move to a cheaper part of the country. This is something that does amaze me because incomes seem to be more fixed and expenses seem to be more variable to me. I mean, I’ve lived in so many different places around the country and generally higher cost of living does not necessarily mean higher wages. Right, absolutely, it does, it does. So that’s something somebody needs to pay attention to before they go moving off to a particular part of the country. And you can find all this information on Google.

[21:28] You can figure out average rent costs, average food costs, average transportation costs in a particular part of the country. And so that should be looked at before a move is made and a decision is made around income, around which job, and then like I said, around which apartment, which car, et cetera. All of those need to be looked at together. And yes, it’s a lot to look at and try to make decisions about, but it’s absolutely necessary. Another thing to look at is taxes vary a lot from state to state as well. Yes, they do, without a doubt. And some, of course, cities now even have taxes. So that has to get looked at, cities or counties, and an additional tax that’s there. And then some states don’t have any tax.

[22:15] Challenge number six, we’re on the last one. Fewer and fewer millennials are becoming full-time entrepreneurs. A cultural myth exists that millennials burned by a tough job market during the recession decided to spurn paid employment in favor of becoming entrepreneurial masters of their fate. To judge by the popular narrative in the media, members of Gen Y have created businesses and droves and become the kings of startups. There’s just one problem with this narrative. It’s completely wrong. The number of young entrepreneurs has actually declined over the last two decades. That kind of surprises me. Yeah, it does. I wonder where they’re getting their information. And then obviously the media,

[22:59] I wonder where they’re getting their information. And for us, I don’t know that it matters necessarily which one is technically right from a statistical standpoint. But what is so cool in today’s world is how common it is for people to do both. Have your day job that provides the reliable income, but then pursue whatever your love is in addition to a day job. Hopefully your day job is something that you love too, but pursue something else on top of that, whether it’s a network marketing company or creating a product or a startup or writing a book or whatever it is, but pursue entrepreneurial activity at a minimum. And then on top of that, you could, if you can’t pursue the actual job, which I think everybody should at least try,

[23:45] the job that would be connected to a new company, in other words, then pursue an entrepreneurial thought process. Because every single person can be an entrepreneurial thinker and they can act like an entrepreneur inside whatever organization they’re in. And that is a fabulous way to provide more value. Super, that is exactly pretty much word for word what their solution is, is rather than being one or the other, be both, be an employee and a self-employed person simultaneously. Love it, absolutely. Now, for our listeners out here, I don’t think in the last couple podcasts, we have not mentioned the free gift here lately, so we probably should do that. Yes, I would love to share a booklet that we’ve written called Financial Planning Has Failed.

[24:41] And it is a fabulous way to learn. So we’ve talked a bit here about learning and getting more educated in the financial realm. Has a bunch of good information on the history of the financial planning environment, some unique ideas about the three specific products that we work with for our clients, which are a place to store cash, a place to create income and a place to get your money to grow. And so if you’re interested in that, pop onto partners number four, prosperity.com slash ebook. That’s partners number four, prosperity.com slash ebook. There’s an audio version as well as a PDF download that’s immediate. You cannot get this on Amazon. It is available for our listeners only at partnersforprosperity.com slash ebook.

[25:32] Super. Well, we want all of our listeners to know how much we appreciate your comments and questions. We always take those very seriously. If there’s a topic you’d like to see us research or bring up, or maybe it’s a personal situation that you’re going through, would gladly, easiest way to get in touch with us is the email and I’ll let you give that, Kim. That’s hello at partners number four, prosperity.com. Again, a special email for our podcast listeners, hello at partnersforprosperity.com with the number four in the middle. Super. Thanks again to Kim Butler. This is No BS Winnie Guy, Todd Strobel. We’ll see you all again real soon. We’re listening to the Prosperity Podcast to take control of your money

[26:20] and have it work for you. Visit us at partnersforprosperity.com. If you liked this episode, make sure you subscribe and leave a review.