Every generation is different. If you were born between 1980 and 1997, you are part of the millennial generation. There are 76 million people classified as “millennials” and, like the generations before, you’re most likely a product of the financial environment you grew up in. You are dealing with a difficult job market and record student loan debt but you are better educated, more connected, confident and optimistic. You also have a very different view about how to manage your money.
The truth is that much of what you believe about money is wrong. What are some of the money-related myths that so many still believe? In Ken Fisher’s book, “The Little Book of Market Myths,” common misconceptions about the stock market and investing are stripped down. Not being aware of some of the popular market misconceptions could lead to missing out on higher earning potential or, in some cases, financial loss. I talked with a few financial advisers and flipped through a bunch of finance books and came up with these five top myths:
#1. Credit is Bad, Cash is Good
Millennials experienced the Great Recession firsthand. They tend to mistrust large corporations because of the role financial institutions played in the economic fall. It makes sense to spend only what’s in your bank account or use the cash in your pocket, right? Not exactly. Living within your means is exactly right. Paying with cash keeps you on budget. But, you also need credit. Why? Try buying a house without a good credit score and on-time credit card payment history.
The wise use of credit is smart money sense. One of the best ways to establish a credit history with on-time payments is to pay some of your fixed monthly bills with a credit card. The caveat? You have to pay the balance in full each month to avoid fees and interest.
#2. Pay Off Student Loans Before Saving
Many millennials are overwhelmed by student loan debt. In 2014, the average amount of undergraduate student debt was a staggering $30 million. The shaky job market hasn’t helped. But what happens when there’s an emergency? A medical emergency or car breakdown could be disastrous if you don’t have money set aside to pay for it. You should definitely have an emergency savings account to prepare for these types of emergencies. That being said — how then can you save and pay off your student loan? Do both. Pay yourself first (save) and then pay off your debt. Even if you put a small amount in savings, it adds up over time.
The same goes for retirement planning. If your job offers a retirement plan, take advantage of it. This is especially true if your company matches any part of your contributions. Take a look at your employer’s 401(k) and Individual Retirement Accounts (IRA), and contribute as much as you can and then increase that amount slightly every year. You may not want to think about retirement now, but the only way to make sure you have enough later is to start contributing now.
#3. It’s Fine to Hop from Job to Job
Millennials aren’t like baby boomers, who stayed in the same job for 30-40 years. According to a Future Workplace survey, 91 percent of millennials plan to stay in their current job for three years and move on. The problem? Most company retirement plans don’t match contributions or fully vest participants for an average of three to five years.
Know what you’re leaving behind before you jump to a new job and potentially lose all or a good portion of your company’s retirement contribution
#4. Invest in the Stock Market? No Way!
The stock market crash and financial meltdown of 2008 is likely etched in your memory. If that’s what’s scaring you off, you need to rethink your position. Markets behave in a cyclical fashion. Historically, investing in the market earns a greater yield than putting all of your money in safe, little or no-growth accounts.
#5. You Can’t Trust Financial Advisers
A Scratch study found that approximately 75 percent of millennials said they would rather go to the dentist than get advice from a financial adviser. The fear is real, but can quickly be curbed by a little research online and then meeting with a financial adviser face-to-face. A couple of guidelines to think about. Find an experienced financial adviser, and choose someone who is fee-based and interested in learning about you and your goals.