Yahoo Finance Young Americans are trying to ‘unlearn’ the financial habits they picked up from their parents
Most of us adopt habits from older generations, either because of what we're taught or because of observations that lead us to believe certain behaviors are "normal."
This can be especially true when it comes to managing money since there is often little formal education on the topic of personal finances.
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“We get our money personalities from our childhood,” said financial planner Angela Dorsey of Dorsey Wealth Management to Jessica Chou of The Wall Street Journal. “So if in our childhood there was a lot of hesitancy around it, then that shapes how you feel about money and taking calculated risks.”
Chou spoke to a friend who struggles with spending to improve his quality of life after years of watching his parents scrimp and save. Chou herself had to "unlearn" lessons from her risk-averse mother and started to put money into something beyond a basic savings account.
Unfortunately, not all of the financial behaviors we learn from our parents will set us up for long-term success. With that in mind, here are three money attitudes many young Americans should try to unlearn.
Relying on credit cards to fund your lifestyle
Credit card balances in the U.S. have topped $1 trillion, according to the the New York Fed, and delinquencies have risen past pre-pandemic levels. Experian data shows that the average consumer was carrying $6,501 in credit card debt in Q3 2023, up 10% from the previous year. Arguably making matters worse for consumers these days is the emergence of BNPL (Buy Now Pay Later) loans.
With the average credit card interest rate almost at 28%, per Forbes Advisor, it's important that younger generations avoid repeating the spending mistakes of older generations. Drowning in expensive debt can prevent them from reaching their financial goals and enjoying a good night's rest.
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Treating homeownership as essential
Homeownership has been the financial holy grail for boomers, with many treating buying a property as the key to wealth building. In fact, 45% of boomers became homeowners between the ages of 25 and 34, compared with 37% of millennials who did the same, according to Berkeley Economic Review.
According to housing economist Ken H. Johnson, millennials may have avoided buying homes despite seeing home prices tumble during the Great Recession because they realized homeownership wasn’t necessarily the best investment. He says they probably determined they might end up richer by renting and investing more of their money in stocks and bonds.
“I just think the younger folks are realizing, 'Hey, maybe I need to rent and reinvest. Maybe I need to be able to pick up and move to Atlanta or Washington, DC, on fairly short notice to get the highest salary and best professional advancement,” he told Realtor.com recently. "And when you put all that together, I'm not surprised the average age for the first-time homebuyer is going up.”
Renting certainly has its upsides today, with mortgage rates surging to the highest levels in decades. Financial experts like Peter Schiff and Ramit Sethi have recently said renting is the better option for many Americans.
While buying can still be a path to wealth, the younger generation has definitely reconsidered the idea that owning one's own place is key to achieving the American dream.
Not prioritizing investing
For many boomers, investing wasn't something they did from an early age. According to data from Charles Schwab, the average age boomers started investing was 35. With the starting age for millennials and Gen Z at 25 and 19, respectively, it seems that younger Americans aren’t following in their parent's footsteps.
"When comparing themselves to their parents at their age, more than half of all Americans surveyed believe that they are doing a better job at investing (51%), and they also feel they’re living their desired lifestyle more than their parents did at their age (52%)," said the press release.
Members of these generations are more likely than their older counterparts to say they learned about investing at a young age and were taught about investments in school. This could pay off in higher retirement balances over time.
By changing their perspectives on investing, homeownership, and credit card debt, members of younger generations may very well end up doing better financially than their boomer parents — despite the doom and gloom we so often hear about their financial prospects.
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This article provides information only and should not be construed as advice. It is provided without warranty of any kind.
