This Week In Your Wallet: Boomerang Kids and Budgeting Tricks
In case you were out of the country (or busy watching the World Cup – how painful was that), the Millennial generation made a number of headlines this week. Researchers from the Arizona Pathways to Life Success (APLUS) found that more than half of college graduates still rely on their parents for financial support (that includes nearly half of those employed full-time). It also highlighted changing mentalities. These graduates don’t seem to value the same things many of us did at their ages. For instance, nearly 30% said marriage and having children isn’t important – roughly 20% don’t value owning a home – and 16% said living on their own is not a priority.
The result: Boomerang kids. One in 5 people in their 20s and early 30s is now back home and living with mom and dad, according to New York Times Magazine. Ten years ago – it was one in 10. It’s no secret as to why. Graduates born in the late 1980s and early 1990s walked off campus into an unwelcoming economy – many carrying the weight of student loans with them. Today, roughly 45% of 25-year-olds have outstanding loans, with the average debt surpassing $20,000. Many of them aren’t earning enough – more than half of recent grads are unemployed or underemployed — to make dents in repayments either.
According to the magazine, boomerang kids are becoming a new and permanent life stage. But is it a sign of failure – or a smart strategy? Joyce Serido, the principal investigator on the APLUS study, says the research points to the latter. “It’s not that students are lazy or unmotivated. They’re being strategic, they’re being aware,” Serido says. “They’re looking at the landscape and thinking, ‘How do I make it when things are unstable?’”
Financial Advisor Tim Maurer, and director of personal finance for the BAM Alliance, agreed that there are some reasons (i.e. establish emergency savings, make a dent in loans, etc.) why moving back home is in fact a smart thing to do. However, if you do have a boomerang kid, it’s important that you set boundaries. Maurer says to establish a plan: “We’re going to help, but…here’s when we’ll stop funding your auto insurance, your phone, etc.”
For more advice for those of you living this scenario, check out my most recent column in Fortune. And let me know what you think. You can reply to this email or send me a tweet @JeanChatzky.
Traditional vs. Roth 101 for Millennials
As for those Millennials who are working, earning and investing? They’re putting more of their money into Roth IRAs than Traditional IRAs – a switch from earlier generations. For example, investors between 18-24 years old have over 16 times more money in Roth IRAs than Traditional ones, according to T. Rowe Price. As Yahoo Finance reports, it’s not a bad idea. Why? You’ll likely save more in taxes overall.
Contributions to Roth IRAs are made with money that has already been taxed (contributions to traditional ones are made with pre-tax dollars). You can take a tax deduction on the latter. But the benefit to going the Roth route is that you can withdraw the contributions and earnings tax-free once you hit age 59 ½ (and, if you need to get at your contributions alone, you can do that fairly easily before you hit retirement age).
The longer the money has to grow, the more it will likely amass in tax-free savings – which makes Roths a particularly good idea for younger people. As for the rest of us (i.e. older folks), if you expect your tax bracket will be higher when you withdraw the money than it is today, socking some money into a Roth either via an IRA or through the Roth 401(k) option that many companies are now offering can be a good idea. Check out your options when open enrollment time rolls around.
The art of saying ‘no’
Giving back is important. So is supporting your friends. That’s why when a friend asks me to support a charity he or she is raising money for – I often reach for my checkbook. But what happens when the same friend repeatedly hits you up for contributions – or too many friends hit you up at the same time? How do you say no? MONEY offers some conversational cues to help you delicately put your foot down without stomping on your friendships at the same time.
For starters, open the conversation with praise. Acknowledge your friend’s dedication, passion and commitment to the cause. Then make a statement like: “I’ve run through my budget for charitable donations this year, so unfortunately I can’t make this a priority right now.” You don’t need to explain your finances (or your reasoning) anymore than that. Alluding to your budget also reinforces that your “no” isn’t personal. It’s important to be polite but firm, and to not over-apologize for having different financial priorities. Just remember to be understanding when the same friend says no to you.
Friends that budget together
And finally, while we’re on the subject of friends. Those that budget together, save together, according to new research from Vanderbilt University and Texas A&M. If you’re trying to meet a financial goal (i.e. cut back on spending or save for a big trip), you’re more likely to accomplish that goal with the support from a friend who’s making similar decisions, USA TODAY reports.
It’s just like the research that says you’re more likely to stick to a new diet or workout regime when tackling it with a friend — the same goes for starting a budget. Along the same lines, Dan Ariely, author of Predictably Irrational, found that when couples discuss how much he – or she – is contributing to the retirement plan, the contribution amount rises. Why? “When people think together as a couple, they make better decisions about their long term future.” Read on here.
Have a great week,
Jean
