America’s 83+ million millennials will soon be leading our nation. Called the first digital native generation, most millennials were technologically savvy by the age of six. Millennials are engaged, optimistic, and ready to take to lead the world. But before leaving their mark, they must have strong foundations from which to build. Therefore, it is incumbent on mentors to teach our young people how to cultivate lifelong foundations, including a solid financial groundwork which will allow them to thrive and prosper.
The first step to sound finances is creating and maintaining a budget. On a mathematical level, it is easy, just adding and subtracting. The tricky part is calculating what can be spent and sticking to that budget. Make sure your millennial understands the difference between a want and a need. Rent and food are needs, a fabulous new pair shoe is most definitely a want (even if they are on sale). It is easy to track budgets with the many apps available. But exercising self-discipline that goes with maintaining a budget has to be taught and encouraged.
Credit is a part of everyday life. Credit is also fickle; it can save us or destroy us. Often loans are necessary to make any large-scale purchases. Credit may also be required cover emergency expenditures if cash is not available. To obtain a loan, a good credit score is needed; to build a credit score, credit must be used. Thus, it is essential that millennials begin to build their credit early in adult life. Paying student loans on time each month is a great start. Credit cards are another factor in beefing-up that all important score. However, millennials must learn to read and understand the fine print. Low introductory rates may be only temporary, skyrocketing at the end of the promotional period. Some cards include points that can be used to purchase other items. But those cards may come with a high membership fee; so what seemed like a good deal may turn out to be a costly deal. Furthermore, no college-aged student needs a $5,000+ credit limit. A $1,000 limit will suffice to cover any emergencies while minimizing the temptation to let spending run amok.
Once job offers begin to come in, millennials need to learn important factors in deciding which position to accept. Ask if the company offers a 401k or other type of matching retirement plan as well as options like continuing education reimbursements. Before any decision is made, know what type health insurance benefits are offered, and if that offering includes a High Deductible Health Plan (HDHP)/ Health Savings Account (HSA). Although not as glamorous as a corner office or an expense account to wine-and-dine clients, retirement and health benefits are 100% tangible and should their value should never be overlooked.
The final pillar to building a strong financial foundation is savings. First, 5% of earnings should be diverted to an emergency fund. Next, if an HDHP/HSA is available, take the time to learn all of the advantages they provide. HSAs offer big tax savings, HDHPs/HSAs tend to have much lower insurance premiums, and many employers contribute to the savings account. HDHPs often cover all preventative care at 100%, allowing for more savings. HSAs give young people an excellent opportunity to build a significant safety net that can be used for healthcare costs decades later when those funds will be needed the most.
It’s never too early to start retirement funding. Contribute the maximum amount to 401ks and increase contributions as income grows. Ask about a Roth Feature, giving up a tax deduction that other plans allow may be a lucrative trade-off due to the Roth benefits. Whenever possible, keep savings with the employer. Benefits Executives typically work with financial advisors and have greater purchasing power than individuals. To avoid the temptation of spending verses saving, enroll in automatic payroll deductions – just set it and forget it.
Millennials will shape the future, so take some time to help them build a solid financial foundation. Some advice can make a difference in the financial wellness of the next great generation.