We millennials have a bad reputation when it comes to money. As a generation, we carry higher student debt and place value on different things than our parents. Baby Boomers cannot comprehend how it is possible that we can easily spend $4 on a morning coffee or why we put everything on our credit cards and never carry cash. (My father yells at me for this constantly!)
Regardless of our differences, there is much that millennial children can learn from their parents when it comes to money and personal finance. As a generation, we tend to be overly confident in our talents, and money management is no different. If you’re considering talking to your children about their finances, you should. Despite what we tell you, we could benefit from your advice and experience. As you think about the conversation, here are some ideas for you:
Don’t wait: Stop avoiding “the talk”. We need your guidance. Share with your children your financial mistakes as well as what worked. Describe how you saved up for big purchases like your first home or college tuition and how you are planning for retirement.
Resist the urge to pass judgement. It is easy to show frustration because your millennial child booked a trip to South America and missed a student loan payment. Your child will likely become upset and defensive – definitely not a way to start the parental advice conversation.
Explain the value of time: As an investor yourself, you know the value of time in the market. We millennials have plenty of time (the oldest millennials turn 40 this year). If you’re not comfortable sharing your personal finances with your children, discuss this example:
Sharon and Mary both invest $100/month at a 5% annual compound rate of return. However, Mary begins investing at age 25, contributing $100/month until age 65 and Sharon begins saving $100/month at age 35. The extra 10 years of saving means that at age 65, Mary has about $162k in her investment account, while Sharon only has $89k. Mary’s balance is nearly double Sharon’s and she only contributed $12k more of her own money.
Oftentimes people think they need a lot of money to get started. If it feels too daunting or intimidating for your children, encourage them to start small and work towards saving 10%+ of their paycheck. Fidelity and other financial institutions have removed many barriers to investing by offering no minimum and no fee funds. Don’t forget, pennies add up to dollars over time.
Emphasize the importance of paying down debt: The silver lining of the pandemic-induced recession is that millennials doubled their assets over the past four years. According to the Federal Reserve, this is the first-time millennial assets have exceeded $10 trillion. However, we are also saddled with $4 trillion in debt, much of which is higher-interest consumer loans as opposed to asset-secured obligations, like mortgages. We need help managing our debt, and Boomers are typically much better at this than we are.
Encourage your children to prioritize high-interest debt payments first (known as the avalanche method), even if that means making a few sacrifices. Work with them to create a budget that outlines all income streams, expenses, and debt obligations. Remember to celebrate with your children as they make progress. Your support means they’re more likely to stick with the commitment.
Get professional help: In 2020, Bloom Advisors launched a special program for our clients’ family, known as the Family Program. Under this program, we will manage money for our client’s immediate family with no minimum investment requirement. Many of our clients’ children have taken advantage of this opportunity to begin investing for their future. Especially helpful for millennials is our ability to manage 401(k) accounts. If you are a client and this is something your child is interested participating in, please reach out to us at email@example.com for additional information.
Like any tough conversation, the hardest part is getting started. However, I am confident you’ll be glad (and relieved) you had the discussion. And although your children might not say it, on behalf of your millennial, thanks.