Following Your Parents’ Financial Advice Isn’t Always a Great Idea–Here’s Why
Parents only want the best for their children. But, although they may mean well, a lot of the financial advice that they have might be outdated and no longer helpful in the context of current economic conditions.
While previous generations were able to find success by following the traditional path of going to school, getting a good job and buying a home with hard work, the same cannot be said for their now-grown children’s generation.
A Different Time
People who entered the workforce in the years following the last financial crisis find themselves in a much more vulnerable position compared to their parents when they were around the same age.
For one, there is the much higher cost of housing whether renting or buying. In fact, it’s not surprising to hear about how the majority of one’s salary can be eaten up by rent and similar expenses alone.
There’s also the saddening reality that members of the current generation have lower incomes and fewer assets compared to their counterparts in the previous decades. According to sources, millennials have an average net worth of $92,000. That’s about 40% lower than that of Gen X (born 1965 to 1980) and 20% less than that of Baby Boomers (born 1946 to 1964).
The Burden of Educational Debt
Adding to that is the much more expensive cost of a college education today. According to data from the Labor Department, college tuition has seen a whopping 1,375% increase from its costs in 1978. In connection with this, students are forced to get student loans just to afford to go to school.
Unfortunately, some parents actually encourage their children to take on student loan debt because they see it as ‘good debt’ and an investment in one’s self.
However, there are just cases when students end up burying themselves in too much debt. This may be evident in people who choose to go through graduate school to improve their earning potential. It’s important to think about whether it would be worth it to further borrow tens of thousands of money at an interest.
The American Dream & Compromise
Everyone’s got their own version of the American Dream. But it usually follows their parents’ path which involves starting a family, buying a home and having a stable job by a certain age. Millennials may have to make changes on their dreams though.
Experts like financial planner Sarah Behr warns her clients against buying a home even if they think they can afford the expensive investment.
After the 20% down payment, people would have to worry about affording the monthly mortgage dues which might deplete their savings or put them at risk for default when they run into trouble with their income source.
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