MONEY Savings

5 Signs You Will Become a Millionaire

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Martin Barraud—Getty Images

A million isn't what it used to be. But it's not bad, and here's how you get there.

A million bucks isn’t what it used to be. When your father, or maybe you, set that savings goal in 1980 it was like shooting for $3 million today. Still, millionaire status is nothing to sniff at—and new research suggests that a broad swath of millennials and Gen-Xers are on the right track.

The “emerging affluent” class, as defined in the latest Fidelity Millionaire Outlook study, has many of the same habits and traits as today’s millionaires and multimillionaires. You are in this class if you are 21 to 49 years of age with at least $100,000 of annual household income and $50,000 to $250,000 in investable assets. Fidelity found this group has five key points in common with today’s millionaires:

  • Lucrative career: The emerging affluent are largely pursuing careers in information technology, finance and accounting—much like many of today’s millionaires did years ago. They may be at a low level now, but they have time to climb the corporate ladder.
  • High income: The median household income of this emerging class is $125,000, more than double the median U.S. household income. That suggests they have more room to save now and are on track to earn and save even more.
  • Self-starters: Eight in 10 among the emerging affluent have built assets on their own, or added to those they inherited, which is also true of millionaires and multimillionaires.
  • Long-term focus: Three in four among the emerging affluent have a long-term approach to investments. Like the more established wealthy, this group stays with its investment regimen through all markets rather than try to time the market for short-term gains.
  • Appropriate aggressiveness: Similar to multimillionaires, the emerging affluent display a willingness to invest in riskier, high-growth assets for superior long-term returns.

Becoming a millionaire shouldn’t be difficult for millennials. All it takes is discipline and an early start. If you begin with $10,000 at age 25 and save $5,500 a year in an IRA that grows 6% a year, you will have $1 million at age 65. If you save in a 401(k) plan that matches half your contributions, you’ll amass nearly $1.5 million. That’s with no inheritance or other savings. Such sums may sound big to a young adult making little money. But if they save just $3,000 a year for seven years and then boost it to $7,500 a year, they will reach $1 million by age 65.

An emerging affluent who already has up to $250,000 and a big income can do this without breaking a sweat. They should be shooting far higher—to at least $3 million by 2050, just to keep pace with what $1 million buys today (assuming 3% annual inflation). But they will need $6 million in 2050 to have the purchasing power of $1 million back in 1980, when your father could rightly claim that a million dollars would make him rich.

Read next: What’s Your Best Path to $1 Million?

TIME

Why You Won’t Be Splurging This April

We're getting responsible about that "free money" from Uncle Sam

About 80% of Americans who filed taxes got back a refund last year, averaging just under $2,800. Usually, even though it’s our money to begin with, we treat it kind of like a windfall, buying appliances, going on vacation or spending it in other fun ways.

That’s not happening this year.

According to an annual National Retail Federation survey, nearly half of Americans who plan to get a refund say they’re going to be socking part of all of it away into savings — the highest percentage ever recorded. About 40% say they’re going to pay down debt with part of all of their refund, a three-year high. Perhaps surprisingly, it’s young adults leading the charge, with 55% of those under 24 years old planning to save their refund money, the highest percentage of any age bracket.

About 13% of respondents do say they’ll use the money on a vacation, which is a high not seen since 2007’s tax season, before the recession hit. Only about 10% say they’re making a big purchase like a TV or a fridge, a slightly smaller number than last year and the lowest percentage in the survey’s history. About the same number say they’ll splurge on things like dinners out, spa treatments and new clothes.

“Americans are thinking of the future, and remaining financially secure is a big part of that,” NRF president and CEO Matthew Shay said in a release. Getting our hands on those refund checks is another part — when the survey was conducted in early February, almost a quarter of people said they’d already filed their taxes (although 15% are procrastinators who admit they’ll wait until April).

The good news, relatively speaking, is that fewer Americans are relying on their tax refunds to pay for everyday expenses. It’s still about a quarter of survey respondents, but that’s better than the 30% who said they needed that money for everyday expenses just two years ago.

Even with this year’s intention to be diligent about our tax refunds, though, Americans aren’t nearly out of the woods when it comes to the security of their savings accounts. A Bankrate.com survey published this week finds that nearly one in four Americans have more credit card debt than they do money in savings, while another 13% have no credit card debt, but no savings, either. Fewer than 60% have more savings than credit card debt, a situation Bankrate chief financial analyst Greg McBride describes in a release as “teetering on the edge of financial disaster.”

MONEY Kids and Money

The High School Class That Makes People Richer

Graduates with $$ on their caps
Mark Scott—Getty Images

Kids really do benefit from learning about money in school, new data show

Most experts believe students who study personal finance in school learn valuable money management concepts. Less clear is how much they retain into adulthood and whether studying things like budgets and saving changes behavior for the better.

But evidence that financial education works is beginning to surface. Researchers at the Center for Financial Security at the University of Wisconsin recently found a direct tie between personal finance classes in high school and higher credit scores as young adults. Now, national results from a high school “budget challenge” further build the case.

Researchers surveyed more than 25,000 high school students that participated in a nine-week Budget Challenge Simulation contest last fall and found the students made remarkable strides in financial awareness. After the contest:

  • 92% said learning about money management was very important and 80% wanted to learn more
  • 92% said they were more likely to check their account balance before writing a check
  • 89% said they were more confident and 91% said they were more aware of money pitfalls and mistakes
  • 87% said they were better able to avoid bank and credit card fees
  • 84% said they were better able to understand fine print and 79% said they were better able to compare financial products
  • 78% said they learned money management methods that worked best for them
  • 53% said they were rethinking their college major or career choice with an eye toward higher pay

These figures represent a vast improvement over attitudes about money before the contest, which H&R Block sponsored and individual teachers led in connection with a class. For example, among those surveyed before and after the contest, those who said learning about money was very important jumped to 92% from 81% and those who said having a budget was very important jumped to 84% from 71%. Those who said they should spend at least 45 minutes a month on their finances jumped to 44% from 31%.

The budget challenge simulates life decisions around insurance, retirement saving, household budgets, income, rent, cable packages, student loans, cell phones, and bank accounts. Teachers like it because it is experiential learning wrapped around a game with prizes. Every decision reshapes a student’s simulated financial picture and leads to more decision points, like when to a pay a bill in full or pay only the minimum to avoid fees while waiting for the next paycheck.

Block is giving away $3 million in scholarships and classroom grants to winners. The first round of awards totaling $1.4 million went out the door in January.

The new data fall short of proving that financial education leads to behavior improvement and smarter decisions as adults, and such proof is sorely needed if schools to are to hop on board with programs like this in a meaningful way. Yet the results clearly point to long-term benefits.

Once a student—no matter what age, including adults—learns that fine print is important and bank fees add up she is likely to be on the lookout the rest of her life. Once a student chooses to keep learning about money management he usually does. Added confidence only helps. Once students develop habits that work well for them and understand pitfalls and mistakes, they are likely to keep searching for what works and what protects them even as the world changes and their finances grow more complex. Slowly, skeptics about individuals’ ability to learn and sort out money issues for themselves are being discredited. But we have a long way to go.

 

MONEY Personal Finance

Turns Out (Gasp) Millennials Do Want to Own Cars

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Jamie Grill—Getty Images

Young adults want to share everything--except maybe their car

Millennials have spurred the rise of the sharing economy by embracing the notion that renting is almost always better than buying. But even they want to own their own set of wheels, new research shows. Could homeownership, a diamond ring and other traditional purchases be far behind?

Some 71% of young adults would rather buy a car than lease one and 43% are likely to purchase a vehicle in the next five years, according to a survey from Elite Daily, a social site, and research consultants Millennial Branding. This finding suggests young adults that have popularized car-sharing options like Zipcar and RelayRides—and all sorts of other sharing options from wedding dresses to leftover meals—may be warming to traditional ownership.

Could it be that the kids are growing up and want something of their own? Other research shows that millennials, widely regarded as an idealist generation that favors flexibility and personal fulfillment over wealth, have begun backtracking there as well. Increasingly, they link financial health to life satisfaction.

For now, though, home ownership remains largely off their radar: 59% would rather rent a house than buy one and only one in four millennials are likely to purchase a house in the next five years, the survey found. “This shows that millennials don’t know anything about investing, even though they say they do,” says Dan Schawbel, managing partner at Millennial Branding. “A home is a much better investment than a car.”

Schawbel believes millennials are more eager to buy cars because they are delaying marriage and children, and they don’t want to be tied down with real estate. Plenty of research supports that view—and the trend toward delayed family formation. Yet it seems only a matter of time before this generation embraces marriage and homeownership too. The oldest are just 35 and, the survey found, three in five can’t afford to buy a home anyway.

The survey also found that millennials might be struggling less with student debt than is widely believed. Yes, student debt now tops $1.3 trillion. But young adults have money to spend. They are using their income to pay off their loans and getting support from their parents to pay for other things, Schawbel says. That may mean a car now or in the near future, and it seems increasingly clear that eventually it will include real estate. This generation is carving its own path, for sure. But the path may wind up looking more traditional than they know.

MONEY Financial Planning

5 Simple Questions that Pave the Way to Financial Security

Analyzing 20 years of data, the St. Louis Fed found that five healthy financial habits are the key to future wealth.

Want to know how your bank account stacks up against that of your neighbors? You’ll get an idea by asking yourself five simple questions, new research shows.

The St. Louis Fed examined data from the Federal Reserve’s Survey of Consumer Finances between 1992 and 2013 and found a high correlation between healthy financial habits and net worth. In the surveys, the Fed asked:

  • Did you save any money last year? Saving is good, of course. Just over half in the survey earned more than they spent (not counting investments and purchases of durable goods).
  • Did you miss any credit card or other payments last year? Missing a payment isn’t just a sign of financial stress; it may trigger late fees and additional interest. An encouraging 84% in the survey made timely payments.
  • After your last credit card payment, did you still owe anything? Carrying a balance costs money. In the survey, 44% said they carried a balance or recently had been denied credit.
  • Looking at all your assets, from real estate to jewelry, is more than 10% in bonds, cash or other easily sold, liquid assets? If you don’t have safe assets to sell in an emergency, you are financially vulnerable. Just over a quarter of those in the surveys have what amounts to an emergency fund.
  • Is your total debt service each month less than 40% of household income? This is a widely accepted threshold. A higher percentage likely means you are having trouble saving for retirement, emergencies, and large expenses.

The average score on the 5 questions was 3, meaning that the typical respondent—perhaps your neighbor—had healthy financial habits 60% of the time. That equated to a median net worth of $100,000. Those who scored higher had a higher net worth, and those who scored lower had a lower net worth.

In general, younger people and minorities scored lowest, while older people and whites scored highest. Education was far less relevant than age. “This may be due to learning better financial habits over time, getting beyond the financial challenges of early and middle adulthood and the benefit of time in building a nest egg,” the authors wrote.

It should come as no surprise that healthy financial habits lead to greater net worth over time. But the survey suggests a staggering advantage for those who ace all five questions. One of the lowest scoring groups averaged 2.63 out of 5, which equated to median net worth of $25,199. One of the highest scoring groups averaged 3.79 out of 5, which equated to a median net worth of $824,348. So these five questions not only give you an idea where your neighbors may stand—they pretty much show you a five-step plan to financial security.

TIME

5 Surefire Ways to Get Better Credit in 2015

You owe it to yourself to do these

Along with the New Year’s Resolutions about losing weight and learning a new language, plenty of Americans will be contemplating how to improve their credit in 2015.

Whether you’re trying to get a better credit score so you can qualify for a mortgage or a low rate on a car loan, are just starting to build your credit history or repairing it after a financial setback, experts say there are a handful of things you should be doing right now.

Consider a balance transfer. “January is the start of balance transfer season, [when] credit card issuers try to lure new customers with 0% APR promotional offers,” says Charles Tran, founder of the site CreditDonkey.com. While balance transfers can help people pay down a high debt load, you really need to read the fine print, Tran says. “Pay attention to the balance transfer fee and how long the promotional period is for,” he advises. Another thing you want to check is whether or not the promotional rate applies to new purchases or only to the balance you transferred onto the card. “Watch out, as a balance on the card will typically mean there is no grace period for purchases,” Tran warns.

Avoid applying for more. Applying for a credit card or loan dings your credit score just a bit, so if you’re planning a big purchase (say, a home or a car) where every point on your credit score counts, hold off on opening any other accounts for a while, says Odysseas Papadimitriou, founder and CEO of the sites CardHub.com and WalletHub.com. “Stop applying for other forms of credit at least six months in advance,” he advises.

Pay down any variable-rate debts. “It’s important to cut down your overall debt level as interest rates are predicted to rise,” Tran advises. Most credit cards these days are variable-rate cards with APRs linked to the prime rate, and right now the prime rate is unusually low. It literally has nowhere to go but up, which means more Americans will find themselves paying more to service their debts. For people who are already strapped, this could hurt their credit if they can’t make those higher monthly payments.

Check your credit reports. This is also especially important if you plan to buy a car or house this year, says Matt Schulz, senior industry analyst at the site CreditCards.com. “Check for errors such as accounts that you don’t recognize and late payments that you didn’t actually pay late,” he says. “Cleaning up any mistakes on your report can make a big difference to your credit score.”

Build a cash cushion. You might think your paycheck is already stretched thin, but experts say it’s important to sock away money in a savings account that you can access if you have an unexpected expense or interruption in your income stream. Without an emergency fund to tap, even a small shock to your finances could knock you into an expensive and long-lasting spiral of debt. “Do not get into additional debt without first having an emergency fund,” Papadimitriou warns.

MONEY Debt

Why Paying Off Those Holiday Gifts May Be Harder Than You Think

man with ball & chain attached to leg
Ingram Publishing—Alamy

More than a third of Americans have already gone into debt for the holidays, and many will find it more difficult to repay than they imagine.

As the holidays fast approach, 38% of Americans have already gone into debt for gifts, new research shows. Many will be shocked at how long it takes for them to pay all they owe.

In general, consumers do not expect their seasonal spending to set them back for long. More than half say they will pay for the spending spree by the end of January, and three quarters expect to be free from holiday debt by the end of March, according to a survey from CreditCards.com.

Nearly 1 in 5 Americans with debt say they will never be debt free.Just 5% worry that they will still be paying for this year’s holidays a year from now. That seems optimistic. Some 7% of consumers entered this season with unpaid debts from last year, according to a blog from the Center for Retirement for Retirement Research. (The figures were even higher in previous years.)

The survey further reveals how misplaced this optimism may be. Nearly one in five Americans with debt say they will never be debt free. That is double the rate of those who felt the same way in a survey last May. So as the economy has turned up in recent months, it seems debt spending has followed suit—accompanied by escalating angst over the debt hole consumers may be digging.

The typical consumer expects to be completely debt free, including a fully paid mortgage, by age 53, the survey found. Yet nearly half worry they will still owe at age 61, and 18% believe they will have debts when they die.

On cue, millennials are the most optimistic generation: Just 16% of those aged 18 to 29 with debt say they will never get out of debt, compared with 31% of those aged 65 and older and 22% of those between the ages of 50 and 64. Meanwhile, high-income households (those earning more than $75,000 a year) are only slightly more optimistic about paying off holiday debt than low-income households, suggesting that everyone is letting go a bit and testing the limits of their earning power.

America’s debt culture is a big contributor to the retirement savings crisis. Other studies show an increasing debt burden on seniors. Those past the age of 60 saw their average debt jump between 2005 and 2014, TransUnion reported. More seniors are carrying student debt all the way into retirement, a government report found.

Today’s spending may have far reaching consequences. To keep spending under control this season, create a holiday budget and stick to it. Track everything you spend. Pay off your highest interest rate cards first and consider transferring balances to a lower rate card. You might be able to negotiate a lower rate if you call your credit card company.

Read more on managing credit and debt in Money 101:
How Do I Get Rid of My Credit Card Debt?
Which Debts Should I Pay Off First?
How Can I Improve My Credit Score?

MONEY Kids and Money

Trouble Talking to Kids About Money? Try This Book Instead

parents trying to talk to teenage daughter
Getty Images/Altrendo

A new book hopes to impart important money lessons in just a few words and pictures

Talking to your kids about money is never easy. We have so many financial taboos and insecurities that many parents would rather skip it—just like their parents likely did with them. If that sounds like you, maybe a new easy-to-digest money guide written for teens can be part of your answer.

As a parent, you have to do something. Kids today will come of age and ultimately retire in a vastly less secure financial world. Their keys to long-term success will have little to do with the traditional pensions and Social Security benefits that may be a big part of your own retirement calculus. For them, saving early and building their own safety net is the only sure solution.

Most parents get that. After all, adults have seen first-hand the long-running switch from defined benefit to defined contribution plans that took flight in the 1980s. Yet only in the last 15 years have we really begun to grasp how much this change has undermined retirement security. Now, more parents are having the money talk with their kids. Still, many say they find it easier to talk about sex or drugs than finances.

The big challenge of our day, as it relates to the financial security of young people, is getting them thinking about their financial future now while they have 40 or 50 years to let their savings compound. But saving is only one piece of the puzzle. Young people need to protect their identity and their credit score—two relatively recent considerations. Many of them are also committed to making a difference through giving, which is an uplifting trait of younger generations. Yet they are prone to scams and don’t know how to vet a charity.

In OMG: The Official Money Guide for Teenagers, authors Susan and Michael Beacham tackle these and other basics in a breezy, colorful, cleverly illustrated booklet meant to hold a teen’s attention. The whole thing can be read in an hour. I’m not convinced the YouTube generation will latch on to any written material on this subject. And while the authors do a nice job of keeping things simple, they just can’t avoid eye-glazing terms like “liquidity” and “principal.”

But they make a solid effort to hold a teen’s interest through a handful of “awkward money moments,” which illustrate how poor money management can lead to embarrassing outcomes like their debit card being declined in front of friends or having to wear last year’s team uniform because they spent all their money at the mall. “Kids are very social and money is a big part of that social experience,” says Susan Beacham. “No teen wants to feel awkward, which is why we chose this word. If they read nothing else but these segments they will be ahead of the game.”

The Beachams are co-founders of Money Savvy Generation, a youth financial education website. They have a long history in personal finance and created the Money Savvy Pig, a bank with separate compartments for saving, spending, donating, and investing. In OMG, they tackle budgets, saving, investing, plastic, identity theft, giving, and insurance.

A new money guide for young people seems to pop up every few years. So it’s not like this hasn’t been tried before. Earlier titles include Money Sense for Kids from Barron’s and The Everything Kids Money Book by Brette McWhorter Sember. But most often this subject is geared at parents, offering ways to teach their kids about money. Dave Ramsey’s Smart Money Smart Kids came out last spring and due out early next year is The Opposite of Spoiled: Raising Kids Who are Grounded, Generous and Smart About Money from New York Times personal finance columnist Ron Lieber.

In a nod to how tough it can be to get teens to read a book about money, Beacham suggests a parent or grandparent ask them to read OMG, and offer them an incentive like a gift card after completing the chapter on “ways to pay” or a cash bonus after reading the chapter on budgets and setting one up. “Make reading the book a bit like a treasure hunt,” she says. That just might make having the money talk easier too.

 

 

 

MONEY Kids and Money

Why More Parents Are Talking to Toddlers About Money

toddler counting pennies on table
Derek Henthorn—Corbis

The money talk is occurring as young as age 3. Here's how that could change the world.

Talking about money at home has long been a taboo subject. But the Great Recession changed that, and now we’re seeing evidence of more open discourse—and maybe even a payoff.

Nearly two-thirds of parents with children between the ages of 4 and 12 pay their kids an allowance to teach them basic money management lessons, according to a survey from discount website couponcodespro.com. On average, these parents began teaching their kids the value of money at age 3, the survey found.

In a similar study two years ago, the American Institute of Certified Public Accountants found about the same percentage of parents using allowance as a teaching tool. But they did not start as early. In that study, kids typically received allowance by age 8. In another study, fund company T. Rowe Price found that 73% of parents talk to their kids regularly about money—and about one in five stepped up the frequency since the financial crisis.

Talking more openly about money inside the household is one of the recession’s silver linings. Many families experienced such a financial blow that they could not avoid the discussion. But even setting aside the recession, starting earlier and talking more frequently makes a lot of sense. In the online world, kids begin making money decisions earlier than previous generations, and when they come of age they will have far fewer safety nets. They need to begin saving with their first paycheck and never stop.

The most common money conversations between youngsters and parents revolve around saving in a piggy bank (73%), working for pay around the house (66%), budgeting for things the kids want (57%), and finding bargains at the grocery store (29%), according to the couponcodespro.com survey. The survey also found that the average weekly allowance across the age group was $13.50, which is higher than the often-recommended rate of 50¢ to $1 per week per years since birth.

The survey also found that 73% of parents paying an allowance admit to buying their kids treats, a practice that can undermine the value of paying allowance in the first place. “Sweets and clothes I can understand,” says Nick Swan, CEO of couponcodespro.com. “But buying them toys for no reason when they are being given an allowance can backtrack on everything they are trying to teach their children about money.”

Still, money talk may be beginning to make a difference. In a recent survey of Gen Z teens (aged 13 to 17), Better Homes and Gardens Real Estate found that half say they know more about money than their parents did at their age. Two-thirds attribute their knowledge of money matters to discussions in the home, and two in five credit discussions in school. Three in five have already begun saving.

This youngest generation also seems to be managing credit cards more adeptly than their older cousins, the Millennials. These are encouraging trends that, if they persist, will help the economy long term and may just insulate this youngest generation from another crisis.

 

 

 

TIME Saving and Spending

This Law Would Immediately Improve Your Credit Score

A high-ranking lawmaker is pushing for Congress to redraw the road map for how credit scores are calculated, with an eye toward giving a little more breathing room to people who have fallen on tough times financially.

California representative Maxine Waters, the highest-ranking Democrat on the House Financial Services Committee, is introducing legislation that would modify the Fair Credit Reporting Act in several ways.

It would sharply reduce the amount of time negative information stays on your report. Right now, if you default on a loan, have a debt go into collections or similar, you’re stuck with that black mark for seven years. Waters’ proposed law would shave three years off that and wipe the slate clean after four years. The proposal also would “reverse” defaults on private student loans if the borrower makes nine on-time payments in a row.

“It probably is time to look at the seven-year reporting period and find out what the data really says,” says Gerri Detweiler, director of consumer education at Credit.com. “The Fair Credit Reporting Act was passed in 1970 before credit scoring was as pervasive as it is today,” she points out. A penalty that might have seemed reasonable back then might be too punitive today now that credit scores play into everything from how much interest you pay on a credit card to whether or not you land a job. (Waters also wants to stop employers from using credit checks when screening applicants.)

Waters’ bill also would erase debts that are settled for less than the original balance due, including medical debts. Fair Isaac, the company behind the widely-used FICO score, also made some recent tweaks to its scoring formula, including a similar change that won’t penalize people for late payments if the debts have been paid off. The company also said it will give less weight to medical debt, following research conducted by the Consumer Financial Protection Bureau which found that medical debt doesn’t automatically indicate lower creditworthiness.

Some credit experts are skeptical of the impact and warn of unintended consequences and higher costs to borrowers. “This will result in higher rates for everyone,” predicts Amber Stubbs, managing editor at CardRatings.com. “If [banks] are less able to accurately predict risk, they will proactively increase the cost of loans across the board.”

And John Ulzheimer, credit expert at CreditSesame.com, writing in Business Insider, says that Waters’ bill places “unreasonable” demands on financial services providers.

Consumer advocates, though, are happy about the plan. “A lot of reform [is] needed,” Chi Chi Wu, a lawyer with the National Consumer Law Center, tells the Washington Post.

“She’s obviously thought through the thorny issues,” says Linda Sherry, director of national priorities for Consumer Action. “I commend Maxine for this proposal,” she says, although she acknowledges not all the proposed changes would be likely to make it into the final law. “It seems unlikely such a bill would pass in this House,” she says.

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