MONEY credit cards

Why Millennials are Terrified of Credit Cards

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A new poll shows that 63% of Gen Y doesn't carry a charge card. That doesn't surprise MONEY reporter Kerri Anne Renzulli—she's among the majority.

Millennials may have no qualms about skipping cash and swiping plastic for purchases, but we are picky about what kind of card we use. A study released a few weeks ago found that 18 to 29 year olds prefer to swipe debit to credit by a ratio of 3:1.

And now a survey out today by Bankrate.com explains why millennials are reaching for their debit cards so much more frequently: Because it’s the only card many of us have.

More than six in 10 millennials do not own a credit card, the poll found. I am one of them.

For me, this survey was oddly reassuring, putting me in the majority as one of the 63% of Gen Y-ers. While I use my debit card multiple times a day, I still, at age 24, haven’t gotten my first credit card, despite heavy pressure from my parents and my older colleagues here at MONEY who urge me to begin building my credit history.

Why are we millennials making the conscious decision to push off this step?

We don’t love banks

Well, first there’s the fact that as a generation we have low levels of social trust. Having come of age during the recession, we don’t have much faith in traditional institutions like banks, and we certainly don’t want to be reliant upon them any more than we must.

My coworker and fellow cardless millennial Jake Davidson says this certainly figures into his reluctance to sign up. “I feel like credit card companies are waiting to trap me,” he says. “The whole model of their business is to get you into debt. If I use a debit card, there is never any risk of that.”

We already owe too much

Yes, it’s true that if we paid off our balances in full each month, there would be no chance of companies trapping us with revolving debt. But the idea of having to borrow any more money, even if only for a month, can feel like the equivalent of throwing away your life vest to those who are already swimming in deep waters.

I’m talking about the fact that we millennials are already overloaded. On average, we’re starting out with $27,000 of debt from student loans—and that’s just for the bachelor’s degree. Our levels of student loan debt, poverty, and unemployment are all higher than Gen X or Boomers at the same stage of their lives, according to Pew Research.

We’ve seen the dark side

Stories from our friends who’ve actually gotten a card (or two or three) are bleak enough to further scare the rest of us away.

Millennials are the least likely generation to pay their balances off in full each month. A whopping 60% of us don’t, according to Bankrate’s survey. And 3% of us miss payments completely—more than any other age group. That’s all thanks to the high levels of existing debt, low income, and underemployment that make us financially unstable.

We don’t realize what we’re missing

We can’t put this financial step off forever though, no matter how good our reasons. We will need to begin building up our credit histories if we ever want to have a chance of getting an auto loan, obtaining an insurance policy, or buying a house.

So my fellow millennials, if you need to wait for more steady financial times before signing up for plastic, please do so.

But if you’re feeling financially responsible and secure enough to add credit, you might consider easing in with MONEY pick Northwest Federal Credit Union FirstCard Visa Platinum, which is designed for people who don’t yet have a credit history. It has no annual fee, a fixed 10% APR (which is very low, given the average of 15.61%), and a $1,000 credit limit (also very low, so you can’t get into too much trouble).

The only catch is that to build good credit, you’ll want to make sure you aren’t ever using more than 20% of your available credit, or $200.

Oh, and also, you will have to take a 10 question quiz on credit knowledge to get the card—but a little schooling on the risks of plastic won’t hurt you and may even help you avoid turning a financial tool into a financial trap.

As for me, I’m six months behind my original plan to apply for my first card when I got a “real job.” But I’m feeling more motivated these days, knowing that the longer I wait, the further I’m pushing back my dream of renting a whole 600 square feet of New York apartment without my parents’ help.

More on Managing Credit and Debt:
3 Simple Steps to Get Out of Debt
7 Ways to Improve Your Credit
How Do I Pick a Credit Card?

Do you have a personal finance question for our experts? Write to AskTheExpert@moneymail.com.

 

MONEY Kids and Money

3 Ways to Make Sure a Costly College Degree Pays Off

Graduation cap on sidewalk with change in it
Brother, can you spare a better college experience? Paul Hudson—Getty Images

A new study finds a widespread "failure to launch" among millennials fresh out of school. How to make those four years count.

Two years after graduating from college, a significant portion of the class of 2009 was economically and professionally “adrift,” according to a new book by two well-respected educational researchers. And while these young adults had the bad luck to graduate during the Great Recession, how they spent their college years was a large part of the problem too.

Two-thirds of the roughly 1,000 members of the class of 2009 in the study were in the job market in 2011 (about 30% were in graduate school), and almost 40% of that group were unemployed, underemployed, or earning less than $20,000 a year, reports the newly released Aspiring Adults Adrift, by Richard Arum, a New York University sociologist, and Josipa Roksa, associate director of the University of Virginia’s Center for Advanced Study of Teaching and Learning in Higher Education.

Many “are not making the transition to adulthood,” Arum says, noting that two years after graduation, 75% of the group were receiving some sort of financial assistance from their parents, with about a quarter living at home. Many weren’t engaged as citizens—more than two-thirds, for instance, said they didn’t bother reading about current affairs.

Low Expectations

Parents, colleges, and the students themselves share the blame for this “failure to launch,” Arum says, but, he adds, “We think it is very important not to disparage a generation. These students have been taught and internalized misconceptions about what it takes to be successful.”

One example, says Arum: “They have learned through their interactions with educational institutions that it is possible to succeed with minimal effort.” In their study, students who studied alone less than an hour a day still managed to earn an above-average GPA of 3.2.

Another problem, says Roksa, is that many colleges have shifted their emphasis from tough classes to social life and amenities because that is what attracts more students and tuition dollars.

Colleges applicants respond more positively to improved dorms and gyms than descriptions of demanding classes. Plus, add Roksa, schools are increasingly hiring non-tenured professors and keeping them based at least in part on student enrollment and reviews. Research shows that students tend to give better reviews to classes taught by easy graders.

What Goes Wrong at College

The college experience has left these millennials ill-equipped to find good jobs for three reasons, the researchers say.

  • Not enough learning. In their groundbreaking 2010 book Academically Adrift, Arum and Roksa reported that 45% of their study group exhibited no gain in critical thinking in the first two years of college, generally because they took undemanding classes and spent little time studying alone. In this follow-up study, the authors found that the students who failed to develop higher-level thinking skills were twice as likely to have lost a job between 2010 and 2011 than were those who scored well on such tests as seniors.
  • Majors that are not valued by employers. As other studies have concluded, engineers had high employment and earnings rates. Business majors were more likely to land jobs as well. But those who majored in social sciences, humanities, social work, or communications had comparatively high unemployment rates, ranging from 7% to 9%.
  • Undemanding colleges. Students who applied themselves and chose an in-demand major were more likely to prosper no matter what college they attended, say Arum and Roksa. But when all other characteristics were held constant, college choice explained about 24% of the variation in student learning gains. Generally, students who attended more selective colleges did better—perhaps because classes were more demanding. Graduates of less-selective colleges were almost twice as likely to work in low-skill jobs.

How to Do Better

Students are unlikely to make spontaneous changes. Many of the undergraduates studied expressed the belief that social skills would win them good jobs. And many who spent their undergrad years socializing and coasting through easy classes were satisfied with their college experience.

Arum and Roksa note that parents may not realize how much leverage they have to push colleges and students for more academic rigor and a focus on skills valued by the job market. Here’s how to make that effort.

1. Talk turkey. Arum, who has two kids in college, says that parents need to show their children the relationship between discipline, learning, and success later in life from an early age. And keep the message going. “I don’t want to advocate increased helicopter parenting, but we need to orient our children so that they understand that college is a time when one needs to invest in rigorous academic coursework,” he says. “The social aspects of college should complement the academic core.”

2. Demand evidence: When a high school senior is shopping for colleges, remember that a “tour is a marketing exercise by the college,” Roksa says. Ignore the hype and press admissions officers and other officials for evidence of their school’s academic rigor. Ask what percentage of classes require at least 40 pages of reading a week and at least 20 pages of writing a semester, and how much time the average student spends studying alone, all of which this research showed led to greater learning.

Among the evidence she suggests you ask for: student scores on tests of critical thinking such as the Collegiate Learning Assessment, or responses to questions about class assignments on the National Survey of Student Engagement (NSSE). Many schools collect such data but don’t like to release it to parents or the public.

3. Emphasize career planning: More than 40% of the group found full-time jobs through their college’s career services office, or from an internship, volunteer work, or another previous job. Arum and Roksa discovered that the jobs students got through their college career office tended to be better than those secured through personal connections. So parents should push schools to improve their career services, as well as urge their kids to take full advantage of internships, practice interviews, and other services. To find out which colleges launch students into the best-paying jobs, check out Money’s best college rankings, including this list of the 25 schools that add the most value.

MONEY Careers

10 Social Media Blunders That Cost a Millennial a Job — or Worse

Fake Facebook post
Photo illustration by MONEY. Lumi Images—Alamy (inset); Sean Murphy—Getty Images (main)

A generation that lives its life on Facebook and Twitter learns the hard way that the bar for what can get you fired is surprisingly low.

As managers grow savvier (and Facebook privacy settings grow meaningless) it is increasingly foolish to assume that those years-old photos of you double-fisting shots won’t come back to haunt you—and maybe even wreak havoc on your career. A whopping 93% of recruiters check out social media profiles of prospective hires.

“Social media is now so woven into the fabric of young people’s lives that they forget not everything is suitable to put out there,” says former hiring manager Alison Green, who runs askamanager.org. “People are looking.”

So remember your boss, work colleagues, and hiring managers can see your most polarizing tweets, even if they aren’t following you. And even if your public Facebook profile looks like Fort Knox, anyone can see images you’re tagged in by using graph search. Typing “photos of person’s name” into the search window reveals hidden pictures. Test it out to see how creepy it is.

Also note that a social media mistake can ruin your shot at a job without you ever knowing. Green, for example, never told a certain oversharing applicant (let’s call him the “masturblogger”: see #2 below) about why he wasn’t hired for a job at her nonprofit. “To people who don’t lock down their accounts because ‘it’s never been a problem,’ I say, you don’t know whether that’s true,” she says.

If you’re not at least a little worried yet, here are 10 real-life mistakes, ranked from least to most egregious, that could cost you your next job—or worse, make you the next viral cautionary tale.

10. Drinking in a photo—even if you’re over 21. Yes, seriously. A teacher in Georgia was asked to resign because of a Facebook photo of her holding wine and a beer.

9. Complaining about your job. A British teen was let go from a marketing gig after colleagues saw a Facebook post in which she described her job shredding paper as “dull,” even though she didn’t mention the name of the company.

8. Posting while you’re supposed to be working. A city clerk in California’s Bay area was asked to resign this year for allegedly tweeting during council meetings when she was supposed to be taking down meeting minutes. In her resignation letter, she described the job as a “mind-numbingly inane experience I would not wish on anyone.”

7. Making fun of your boss / team. An EMS employee was booted for badmouthing her boss on Facebook (though she ended up with the National Labor Relations Board on her side), and a Pittsburgh Pirates mascot, whose work included racing on the field in a pierogi costume, was briefly fired for a post criticizing the contract extensions of two players—though he was back in his costume a week later.

6. Making fun of clients or donors. While working at a nonprofit, Green nearly fired an employee after the young woman snarkily tweeted a photo of a donation card on which a donor had written eccentric comments. Not only was it in bad taste, says Green, but it revealed the donor’s name. After deleting the tweet (and getting an earful about judgment and boundaries), the woman kept her job.

5. Talking smack about a job before you’ve even accepted it. Technically, the then-22-year-old in question says she had already turned down an internship at Cisco before sending out a tweet saying she’d have to weigh a “fatty paycheck” against “hating the work,” but her subsequent infamy serves as a lesson to other prospective hires.

4. Blowing your own cover. A bank intern who asked to skip work because “something came up at home” became a victim of internet shaming after his boss saw a Facebook photo of him holding a beer, dressed (more or less) like Tinkerbell at what appeared to be a Halloween party. The photo, plus screenshots of his supervisor’s response— “hope everything is ok in New York. (cool wand)” —went viral, though it turns out he was never actually fired.

3. Revealing company secrets. Back in 2011, it was widely reported that an extra on Fox’s award-winning show “Glee” was fired after tweeting spoilers for an upcoming episode. In tweets that are still visible on his feed, a series co-creator told her, “Hope you’re qualified to do something besides work in entertainment” and “Who are you to spoil something talented people have spent months to create?” But according to the extra herself, Nicole Crowther, she hadn’t actually worked on the show that season and the spoilers were just speculation—not inside information. That didn’t stop her story from going viral, complete with online harassment: “I received physical threats of violence, and death threats through social media,” Crowther told MONEY.

2. Sexual oversharing. Green once interviewed a young man whose resume included a link to a private blog—which described personal details about chronic masturbation. “I suspect he’d left that link on there by accident, but it demonstrated very poor judgment,” says Green. Needless to say, he did not get the job.

1. Posting something embarrassing on the corporate Twitter feed. A contracted social media strategist was canned after accidentally posting a tweet on Chrysler’s company feed, instead of his personal feed, insulting local drivers: “I find it ironic that Detroit is known as the #motorcity and yet no one here knows how to f****** drive.” Given the circumstances, Chrysler’s response was surprisingly sanguine.

MONEY Workplace

Even Millennials Want Face Time at Work

Collaborating coworkers in an office
Image Source—Getty Images

The stereotypes about how millennials and their younger siblings in Gen Z prefer texting, email, or social networking over old-fashioned in-person communication are just plain false.

Most people automatically assume that younger generations are tech-savvy. Back when I was working for a Fortune 200 company, I was moved from a product marketing position to an Internet marketing job solely on the basis that I was young—and therefore I must be highly proficient with technology.

The next assumption people make is a related one: The thinking goes that not only are millennials “good” with technology and social media, but that they prefer these forms of communication above all others, including old-fashioned in-person meetings. However, over the past few years, I’ve conducted two research studies comparing the workplace expectations and behaviors of all generations, and the results completely contradict the stereotypes about how members of Gen Y and Gen Z want to communicate at work.

In 2013, I partnered with American Express on a study that compared the workplace expectations of Gen Y and their Gen X and Baby Boomer managers. We found that despite the popularity of technologies such as Skype, instant messaging, texting, and social networking, traditional forms of communication were still the most common ways these generations interacted. Two-thirds of managers said that in-person meetings were their preferred mode of communicating with millennial employees, and nearly as high a percentage of millennials (62%) felt the same way about how they prefer to communicate with their managers.

This year, I partnered with Randstad US, the third-largest staffing organization in the United States, on a study we’re releasing today. This one compares Gen Y and Gen Z workplace expectations in ten different countries. Gen Z—those born between 1994 and 2010—is widely regarded as the most wired generation ever, yet we found yet again that they too like in-person communication best of all. Around the globe, more than half of Gen Z (51%) and Gen Y (52%) chose the face-to-face meeting as their preferred form of communication, while fewer than 20% of both generations said they prefer email.

What this tells us is that in another year and two, when members of Gen Z enter the workplace, they will expect to have in-person meetings and be in an environment where they can make friends and be social face to face. This is good for companies that want to maintain their cultures and for managers who are accustomed to communicating in-person and rely less on technology.

What these studies show is that face time is still very important in the workplace, despite the fact that one in every five (or 30 million) Americans work remotely at least once per week. Managers expect and reward face time, and feel that regular in-person communication adds to the company culture. This is one of the reasons why working at the office is mandatory at companies like Yahoo! and Best Buy.

What both studies also demonstrate is that while technology may be wonderful, efficient, and convenient, the benefits are limited. We innately need to be around other people. As good as technology gets, we still value in-person meetings highly. No matter what generation we’re talking about, the vast majority of employees don’t want to be alone, isolated from coworkers and managers. I worked from home for four years, and it was a huge challenge as a business owner. So now I have an office, and the expense has been worth every penny.

When you’re at an office, or a networking event, you can really get to know the person through their emotions, facial expressions, and gestures—all of which you wouldn’t be able to grasp if you were communicating virtually. That is why in-person relationships are stronger and can lead to better opportunities from a career development perspective. While you might have hundreds of Facebook friends and thousands of Twitter followers, the people you meet and get to know in the real world are more likely to go out of their way to support you. Every generation seems to understand this.

Dan Schawbel is the New York Times bestselling author of Promote Yourself: The New Rules For Career Success, now in an expanded paperback edition.

MONEY Financial Planning

Get Free Help Getting Your Retirement Off the Ground

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Anthony Lee—Getty Images

As a millennial or Gen Xer, you face unique challenges when it comes to retirement. If you need some help getting going, share your story for a chance at a free financial makeover.

The two youngest generations of workers could use a hand with retirement planning.

Gen Xers have had a run of bad luck: a recession that slowed down their careers, a brutal bear market that hit in their early years as investors, and a housing crash that set in just as many had bought a first home.

No wonder they are feeling gloomy about retirement, according to a new survey from the Transamerica Center for Retirement Studies. Only 12% of Gen X workers say they have fully recovered from the recession.

Millennials, on the other hand, are off to a strong start, outpacing Baby Boomers and Gen Xers when it comes to saving for retirement. According to the Transamerica survey, 70% of millennials with jobs are putting money aside. They began saving at a median age of 22. Still, this group faces steep student loan debts, high unemployment, and uncertain entitlement programs in the future.

If you’re like a lot of people your age, you could use some help getting started, whether it’s tips on how to tame your debts and find money to save or advice on what investments to choose and how to best allocate the funds you’ve built up.

For an upcoming issue of Money magazine and Money.com, we’ll pair several novice retirement savers with financial planners to get a full financial makeover. To participate, you should be comfortable sharing details of your financial life, and keep in mind that story subjects will be photographed for the story.

If you’d like to participate, please fill in the form below. Briefly tell us how you’re doing and what your biggest challenges are. And include a little about your family’s finances, including your income, assets, and debts. All of this information will be kept confidential unless we follow up with you for an interview, and you agree to appear in the story.

We look forward to hearing from you.

MONEY Saving

This App May Let You Retire on Your Spare Change

Acorn App
Acorn

The new Acorns app rounds up card purchases and invests the difference for growth, with no minimums and low fees.

Americans spend $11 trillion a year while saving very little. So it makes sense to link the two, as a number of financial companies have tried to do over the past decade. The latest is the startup Acorns, which hopes to hook millennials on the merits of mobile micro investing over many decades.

Through the Acorns app, released for iPhone this week, you sock away “spare change” every time you use your linked credit or debit card. The app rounds up purchases to the nearest dollar, takes the difference from your checking account, and plunks it in a solid, no-frills investment portfolio. So when you spend, say, $1.29 for a song on iTunes, the app reads that as $2 and pushes 71¢ into your Acorns account. With a swipe, you can also contribute small or large sums separate from any spending.

The Acorns portfolio is purposely simple: Your money gets spread among six basic index funds. The weighting in each fund depends on your risk profile, which you can dial up or down on your iPhone. More aggressive settings put more money in stocks. But you always have some money in each fund, remaining diversified among large and small company stocks, emerging markets, real estate, government and corporate bonds. The app will be available for Android in a few weeks and through a website in a few months.

Why Millennials Are the Target

Micro investing via a mobile device clearly targets millennials, who show great interest in saving but have been largely ignored by financial advisers and large banks. Young people may not have enough assets to meet the minimum requirements of big financial houses like Fidelity, Vanguard, and Schwab. With Acorns, there are no minimums. There are also none of the commissions that can render investing in small doses prohibitively expensive. “We want small investors who can grow with us over time,” says Acorns co-founder Jeff Cruttenden.

This approach places Acorns in the middle a rash of low-fee, online financial firms geared at young adults—including Square, Betterment, Robinhood, and Wealthfront. Such firms hope to capitalize on young adults’ penchant for tech solutions and lingering mistrust of large financial institutions. Cruttenden says a third of Acorns users are under age 22. They like to save in dribs and drabs—and manage everything from a mobile device.

Acorns charges a flat $1 monthly fee and between 0.25% and 0.5% of assets each year. The typical mutual fund has fees of 1% or more. Yet many index fund fees run lower. The Vanguard S&P 500 ETF, which invests in large company stocks, charges just 0.05%. If you have a few thousand dollars to open an account, and the discipline to invest a set amount each month, you might do better there. But remember that is just one fund. With Acorns you get diversification across six asset classes—along with the rounding up feature, which seems to have appeal.

Acorns has been testing the app all summer and says the average account holder contributes $7 a day through lump sums and a total of 500,000 round ups. Cruttenden says he is a typical user and through rounding up his card purchases has added $521.63 to his account over three months.

A New Twist on an Old Concept

Mortgage experts tout rounding up as a way to pay off your mortgage quicker. On a $200,000 loan at 4.5% for 30 years your payment would be $1,013.38. Rounding up to the nearest $100, or to $1,100, would cut your payoff time by 52 months and save you $26,821.20 in interest. Rounding up your card purchases works much the same way—only you are accumulating savings, not cutting your interest expense.

Bank of America offers a Keep the Change program, which rounds up debit-card purchases to the nearest buck and then pushes the difference into a savings account. Upromise offers credit card holders rewards that help pay for college. But Acorns’ approach is different: the money goes into an actual investment account with solid long-term growth potential.

One possible drawback is that this is a taxable account, which means you fund the Acorns account with after-tax money. Young adults starting a career with a company that offers a tax-deferred 401(k) plan with a match would be better served putting money in that account, if they must choose. But if you are like millions of people who throw spare change in a drawer anyway, Acorns is a way to do it electronically and let those nickels, dimes, and pennies go to work for you in a more meaningful way.

Read more on getting a jump on saving and investing:

 

MONEY retirement planning

Why Gen X Feels Lousiest About the Recession and Retirement

THE BREAKFAST CLUB, from left: Molly Ringwald, Anthony Michael Hall, Emilio Estevez, Ally Sheedy, Judd Nelson, 1985.
Three decades after "The Breakfast Club" hit theaters, Gen X is still struggling. Universal—Courtesy Everett Collection

Sandwiched between much larger generations and stuck with modest 401(k)s, Gen Xers get no love from financial planners, marketers or media. No wonder they're feeling low.

The Great Recession took a heavy toll on all generations. Yet the downturn and slow recovery seem to have left Generation X feeling most glum.

Defined as those aged 36 to 49, Gen X members are least likely to say they have recovered from the crisis, according to the latest Transamerica Retirement Survey. They are most likely to say they will have a harder time reaching financial security than their parents. Gen X also is far more likely to strongly believe that Social Security will not be there for them and that personal savings will be their primary source of income in retirement.

“Generation X is clearly behind the eight ball,” says Catherine Collinson, president of the Transamerica Center for Retirement Studies. “They need a vote of confidence. But they still have time to fix their problems.”

Arguably, Gen X was feeling most beat up even before the recession. This group is in the toughest phase of life: kids at home, a mortgage, not yet in peak earning years. Mid-life crises typically hit at this age. Studies show that the busy child-rearing years tend to be the unhappiest of our life. The happiest years are 23 and 69 with a big dip in between.

And let’s not forget that Gen X is only two-thirds the size of Millennial (ages 18 to 35) and Baby Boomer (ages 50 to 68) populations. Marketing companies and the media have largely ignored this generation, which early on acquired the downbeat label: slackers. Collinson believes the financial industry is equally focused on older and younger generations, leaving Gen X all alone.

“They have to stake out a plan and pursue it on their own,” she says. “The harsh reality is people have to take on increasing responsibility for their own financial security.”

Maybe that’s why Gen X believes it must build a bigger nest egg. Asked for their retirement number, the median Gen X respondent said they need $1 million. Nearly a third said $2 million or more. The median figure for both Millennials and boomers was $800,000 with only 29% and 23%, respectively, saying they would need $2 million or more.

Perhaps Gen X is being realistic. Even $1 million won’t provide a cushy lifestyle. A 64-year-old retiring next year with that amount would receive an annual payout of only $49,000 a year, according to Blackrock’s CoRI index, which tracks the income your savings will provide in retirement. Looked at another way: purchasing an immediate annuity for $1 million today would buy $5,000 of monthly income, according to ImmediateAnnuities.com. Not bad. But less than most might expect.

Gen X has boosted savings since the recession, the survey found. The typical Gen X nest egg is now $70,000, more than double savings of just $32,000 in 2007. This suggests that Gen X did a good job of sticking to their 401(k) contribution rate during the downturn, buying stocks while they were low and enjoying the rebound. Millennials did a little better, going from $9,000 to $32,000. Baby Boomers were less likely to hang in through the tough times, partly because older boomers were already retired and taking distributions. The median boomer next egg has risen to $127,000 from $75,000 in 2007.

Overall, Baby Boomers felt the brunt of the downturn. They suffered more layoffs and wage cuts, took a bigger hit to their assets, and by a wide margin more Boomers believe their standard of living will fall in retirement. But at least many Boomers are still blessed with traditional pensions and have a better shot at collecting full Social Security benefits.

Millennials are old enough to have learned from the downturn but not so old that they had many assets at risk. This generation began saving at age 22, vs. age 27 for Gen X and age 35 for boomers. Millennials also benefit from modern 401(k) plan structures with easy and smart investment options like target-date funds and managed accounts.

Meanwhile, Gen X is largely pensionless and was something of a 401(k) guinea pig when members entered the labor force. Plans then were untested and lacked many of today’s investment options or any educational material. The plans may have been mismanaged, subject to higher fees or even ignored. Even today, the Gen X contribution rate of 7% lags that of Millennials (8%) and Boomers (10%). Gen X is also most likely to borrow or take an early withdrawal from their plan (27%, vs. 20% for Millennials and 23% for boomers). Some of this relates to their period in life. But they have other reasons to feel glum too.

Still, there is some hope for Gen X. Recent research by EBRI found that if this generation manages to keep investing in their 401(k)s, most could end up with a decent retirement—no worse than Baby Boomers. And they still have time. If Gen Xers raise their savings rate a bit more, they can retire even more comfortably.

Do you want help getting your retirement planning off the ground? Email makeover@moneymail.com for a chance at a makeover from a financial pro and to appear in the pages of Money magazine.

MONEY Insurance

Why Millennials Resist Any Kind of Insurance

Young adults are the most underinsured generation of our time, which makes sense—up to a point.

Millennials are the most underinsured generation alive today—which makes a certain amount of sense. They have relatively few assets or dependents to protect. Still, the gaps in coverage are striking and offer further evidence that this generation has been unusually slow to launch.

Roughly one in four adults aged 18 to 29 do not have health insurance, twice the rate of all other adults, according to a survey from InsuranceQuotes.com, a financial website. (Other surveys have found lower uninsured rates, but this age group is still the most likely to go without.) Millennials are also far less likely to have auto, life, homeowners, renters, and disability coverage.

Young adults have always been slow to buy insurance. They often feel invincible when it comes to potential health or financial setbacks. But something additional appears to be at work here. This generation has famously overprotective parents who awarded them trophies just for showing up. Millennials may view moving back home or calling Mom and Dad for a bailout as their personal no-cost, all-purpose insurance plan.

Millions of young adults routinely boomerang home after college or get other family financial support. The trend is so broad that psychologists have given this new life phase a name: emerging adulthood, a period that lasts to age 28 or 30. MONEY explores this trend, and its costs, in the September issue reaching homes this week. Remarkably, the parents of boomerang kids don’t seem to mind providing the extended support.

A quarter of parents supporting an adult child say they have taken on additional debt; 13% have delayed a life event, such as taking a dream vacation; and 7% have delayed retirement, the National Endowment for Financial Education found. Yet 80% of such parents in a Bank of America Merrill Lynch survey say helping is “the right thing to do,” and 60% are willing to work longer, 40% to go back to work, and 36% to live with less if that’s what it takes to help their adult kids.

“Millennials have had very supportive parents throughout their life,” says Laura Adams, senior insurance analyst at InsuranceQuotes.com. “When you don’t have a fear of the unknown, a fear of life’s what-ifs, you are not likely to think about insurance.”

Yet young people overlook certain types of insurance at their peril—even though these policies may be relatively inexpensive. Most striking is how many skip health insurance, even though the Affordable Care Act mandates coverage and allows children up to age 26 to remain on a parent’s plan. Millions more young people now have health coverage as a result, recent studies have found, and their uninsured rate has dropped. But, still, as many as one in four still go without.

This may be classic pushback against a law young adults see as unfair. They understand that their insurance premiums subsidize the health benefits of older Americans who are far more likely to need care. Yet if Mom and Dad won’t pick up the bill, a visit to the ER can cost $1,000 or more for even a simple ailment. Things get much more expensive for broken bones and other treatments that even the young may need. Among other findings:

  • 64% of millennials have auto insurance, compared to 84% of older generations. Many millennials may have decided to skip car ownership. But if you rent a car or borrow one from your roommate, you have liability. It probably pays to have your own policy, which might cost $30 a month.
  • 10% of millennials have homeowners insurance, compared to more than half of those aged 30 to 49 and 75% of those 65 and older. Fewer millennials own a house, for sure. But this generation isn’t buying renters insurance either: only 12% have it. Renters insurance is cheap: $10 to $15 a month, and it comes in handy not only when someone steals your bike from the storage area but also if Fido bites a neighbor.
  • 13% of millennials have disability insurance, compared with 37% of those 30 to 49. This kind of coverage costs around $30 a month and may seem unnecessary. Yet one in three working adults will miss at least three months of work at least once in their life due to illness, Adams says, adding, “Anyone can throw out their back.”
  • 36% of millennials have life insurance, compared with 60% of those 30 to 49. Again, this coverage is relatively cheap: around $20 a month for $500,000 of term life. If you have no dependents you might skip it. But if you have debt that Mom and Dad co-signed, you should have enough coverage to retire the debt. It’s only fair, given your parents’ years of extended financial support.

 

 

MONEY credit cards

The Spending Mistake that Millennials Are Making

millennial holding credit card
Dimitri Vervitsiotis—Getty Images

Millennials prefer to pay with plastic over cash, a new CreditCards.com study finds—but all that swiping may be unravelling their budgets.

Millennials don’t shop like their parents—and increasingly, they don’t pay like their parents either. Studies have already shown that many of them have chucked the checkbook (if they’ve ever had one); and they’re more likely to forego cash as well, a poll released today by CreditCards.com found.

Asked how they typically pay for purchases under $5, 77% of people over 50 surveyed preferred cash to debit or credit, while just 48% of people between 18 and 29 use paper money. The fact that millennials are using cards to pay for even such small expenses suggests they’re probably using plastic for most purchases.

And when they’re swiping, this group also uses debit (37%) vs. credit (14%) by a larger margin than any other cardholder group.

What millennials may not realize is that choosing plastic—even if it’s debit—over paper could be costing them.

Research has suggested that we’re inclined to spend more when we swipe. A 2008 study published in the Journal of Experimental Psychology found that physically handing over bills triggers an emotional pain that actually helps to deter spending, while swiping doesn’t create the same aversion. As a result, the study found, cash discourages spending whereas plastic encourages it.

In addition, a 2012 study from The Journal of Consumer Research found that shoppers who pay with plastic focus more on the benefits of the purchase than the price, while those who pay with cash focus on price first. In other words, we’re more likely to make the decision to purchase an item when we know we’ll be charging it.

Further fueling our natural tendencies to spend more with plastic—a.k.a. “the credit card premium”—is the fact that many shops and bars mandate that you spend a minimum amount to use your card. So if you were planning to use the card anyway, you might pad your purchase to get to the minimum required.

All this spending on plastic also can cause you to rack up debt or overdraft fees, if you’re not swiping mindfully. And many members of Gen Y are not, it would seem.

For example, millennials are more likely than any other age group to overdraw their checking accounts, the Consumer Financial Protection Bureau found. About 11% of millennials overdraft more than 10 times a year, and these overdrafts were typically for small purchases under $24 and were paid back within three days. With the median overdraft fee equaling $34, borrowing $24 for three days is like taking out a loan with a 17,000% annual percentage rate, the study found.

Of course, we can avoid paying the credit card premium by just using cash. But if you won’t remember to go to the ATM, at least take a second to close your eyes the next time you’re about to buy something using plastic: Think about the price of the item and how it will impact your bank account. You might even give yourself a 24-hour cooling off period to think over any nonessential purchases.

Avoid overdrawing or getting in over your head in debt by reviewing your bank and/or credit card account online once per day, or by using an app like Mint.com, which lets you track all your accounts in one place. Also, consider setting alerts at your bank or credit card website to let you know when you’re approaching a certain balance—this can keep your spending in check.

Related:

Money 101: How Do I Figure Out My Financial Priorities?

Money 101: How Do I Create a Budget I Can Stick To?

MONEY buying a home

Why Millennials Should Wait to Buy a Home

For all the benefits of home ownership, many drawbacks exist as well. Make sure the negatives won't outweigh the positives for you.

Buying your first home is an exciting time, given the dozens of financial and lifestyle benefits that come with owning the roof you sleep under. What’s more, interest rates are still low, hitting 4.3% for a 30-year fixed loan this month, making it a good time to borrow money. According to the latest Trulia survey, 68% of Millennials are in the market for a home priced at $200,000 or lower.

Purchasing a place isn’t necessarily the right move for everyone, though. Despite all of the positives of home ownership, there are some very compelling reasons not to rush into a mortgage right now. Here are seven.

You Lose Flexibility

Home ownership provides stability, but that may not always be a good thing when you are in your career-building years. If you are looking for a promotion, an advance, or job change, you may have to relocate to get to that next level. You need to have the ability to move on short notice, maybe even as fast as 30 to 60 days. Having to sell your home quickly could force you to offer it up at a bargain price, in addition to incurring thousands of dollars of closing costs. Sellers typically pay their realtors six percent of the selling price.

There’s No Room For Baby

Millennials are in the prime years for starting families. You may not have one now, but there’s a good chance that will change in the near future. While that cozy home or downtown condo may sound ideal now, you’ll likely feel different as a party of three. After all, pregnancies as well as the first few months of a newborn are stressful enough. Having to find a larger place to live, sell your house and pack your belongings with a due date looming- or a newborn- can be unbearably stressful and costly. It may even put you in the red.

Moving Within Five Years Will Cost You

If for any reason you think you may not be able to stay in your home for five to seven years, you should not buy. It will be cheaper to rent. The rule of thumb used to be seven years, but now that the housing market is stabilizing, that timeline has shifted slightly. With only moderate market appreciation, it will generally take five years for you to recoup the many thousands of buying, selling, and carrying costs. Keep in mind that in the first years of your mortgage, you won’t be building up too much equity. Banks charge a hefty portion of your interest upfront, with very little going to your principal in the first few years.

Small Down Payments Bring Added Risk

If you don’t have enough money saved for a traditional down payment, don’t buy a house right now. I am a big proponent of 20% down. That is not always feasible for most Millennials starting out, and it is lot of money to have saved up. But, unfortunately, it is the safest, most conservative approach to home ownership. If you can’t bank on Mom and Dad for a leg up on the down payment, then think about saving for a few more years.

You Carry Too Much Debt

You can’t overlook your student loans, car loans, and any other debt you have accumulated. Consider paying it down first, particularly credit card debt. Not only can a home purchase slow your debt reduction plan-likely costing you more in interest- banks will not be willing to approve you for a loan if your debt payments eat up a significant share of your income.

Your Job Security is Shaky

First, purchasing a home with today’s new qualified loan standards requires some consistent job history. When you’re in the early stages of your career, there may be jumps and gaps in your resume, which can make getting approved for a mortgage a challenge. What’s more, job situations can change overnight. Once you own a place, losing a job, suffering periods of unemployment, and living on a lower income are not as easily weathered. You may even need to accept a new job with a lower salary, but your housing costs will remain the same. You won’t be able to quickly downsize, and want to avoid needing to sell out of financial desperation.

You’ll End Up Cash Poor

Buying a home often leaves cash poor. After you come up with the down payment, the closing costs, and any renovation that you need to make prior to moving in, your bank account likely looks depleted. Having few dollars to your name is likely not the way you want to start living the ‘American Dream.’ Thus delay buying until you make sure you will have enough cash leftover to weather a job loss, an unexpected emergency, or even a health issue that could impact your earning power. You don’t want to end up house rich, cash poor and nothing to rely on in an emergency. Life happens.

 

More from Trulia:

Top 10 U.S. Metros with the Highest Private School Enrollment

8 Ways to Make Your Home Offer Stand Out

6 Signs a Home is “The One”

 

Michael Corbett is Trulia‘s real estate and lifestyle expert. He hosts NBC’s EXTRA’s Mansions and Millionaires and has authored three books on real estate, including Before You Buy!

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