Why You Should Ignore the Money Advice Your Parents Gave You
Growing up, we think our parents know everything. They’re the ones to help teach us our biggest life lessons, from how to cure a broken heart to how to drive. But when it comes to money, the times have really changed and the advice they gave you might not make for the smartest financial moves in 2022.
It’s not that your parents were wrong, per se, it’s just that what worked for them does not work for a new generation of adulting. Simply put, “the rules have changed,” says Barron’s. “Americans entering the workforce [now] … face a starkly different landscape than their parents did at the same age.”
Here’s what they might have told you to do — and what you should probably do instead.
Go to College
As has become abundantly clear from the student loan crisis of the past decade or more, taking on debt in the pursuit of a degree isn’t always the best option for everyone. As the White House reported in its announcement in August regarding a sweeping student loan relief package, there are 45 million borrowers in America and most graduates who earn a degree also exit school with $25,000 in debt on average.
The cost of post-secondary education has tripled since 1980 when your parents might have been enrolled, and salaries have not nearly kept pace. According to Iowa State University, there have been “stagnant” earnings over the past four decades considering inflation, increased healthcare costs and housing jumps.
New advice: Consider all your options. While a college degree is still preferable and required for many jobs, especially those that mandate advanced degrees, it’s not the necessary benchmark it was decades ago.
As Forbes notes, it’s best to “calculate your expected return on investment before you make any education decisions.” You might want to assess what the final total of the degree might cost you over the course of four or more years, as well as the entry-level salary in your field and the rate of job placement. There are also other verified options like online learning, advanced courses and trade schools that provide the training you might need at a fraction of the cost.
Buy a House
Right now may be one of the worst times to buy a house as mortgage interest is at an all-time high with the Federal Reserve increasing rates several times over the course of 2022 as a measure to curb the record-high inflation we’ve been experiencing, as GOBankingRates.com has reported. As well, the cost of buying a home has skyrocketed. As Barron’s points out, citing data from the Joint Center for Housing Studies at Harvard University, “The typical U.S. home now sells for more than four times the median U.S. income.”
And don’t forget about that sometimes necessary 20% down payment just to get good financing, which may be a pipe dream for many. Barron’s reports, “Given the savings rates of the millennial generation born between 1981 and 1996, rental-listing company Apartment List estimates that two-thirds of millennial renters would require at least two decades to save enough for a 20% down payment on a median-priced condo in their market.”
The other issue is that buying a house locks you down and relinquishes the freedom that many newer generations like to live by — of course, you can always sell, but it’s a much more laborious process than just moving apartments.
New advice: Renting may be the way to go — at least until you are financially ready for the burdens that can come with house-owning. It’s not just the mortgage, but also the insurance and cost of home repairs. You’ll want to have some serious savings before buying.
Forbes also recommends using a tool like the New York Times rent vs. buy calculator to better assess your situation. While you’re renting, you can save money to apply towards home ownership, if that is your dream for the future.
Discover: How to Save for a House While Renting
Stay at the Same Job Forever
As Fortune has pointed out, Boomers were the ones to most often make a long-term commitment to their place of work — nearly 40% logged 20 years or more in their tenure. Pensions and work perks were a big part of that, as was job security. But that has all changed in the new millennium.
As Gallup has pointed out, Millennials are now known as the “job-hopping generation” — their polling has shown that “21% say they’ve changed jobs within the past year, which is more than three times the number of non-millennials who report the same.” This can be for a number of reasons, such as more advancement opportunities, better salaries or advantages such as being able to work from home. As the workforce is still struggling to retain employees, that competitiveness will only continue and draw more workers to consider new opportunities.
New advice: Keep your eyes and ears open to all opportunities. The stigma that hopping from job to job might show HR companies that you don’t have loyalty is over, says LifeHacker, who adds, “In fact, moving to a new company is typically the fastest way to make significantly more money.” CNBC also says workers have the upper hand right now, with “nearly two job openings for every unemployed worker” so the odds are in your favor to get the dream gig you’ve been wanting.
Don’t Open Up Credit Cards
Parents were truly looking out for you when putting the fear of god into the thought of opening up a credit card — they didn’t want you to end up in an endless cycle of debt, after all. But it’s a whole different story nowadays. Boomers still outrank millennials in the average number of open credit card accounts by double, says Experian, which may justify why they have such fears.
Credit cards today have incredible perks such as flight miles, and cash back incentives plus they provide some extra purchase security when it comes to the rampant fraud that has become an issue the past couple of decades. They’re also a great way to build up a credit score. This is all assuming you are able to pay off the balance every month because if not it can snowball into larger debts before you know it and your parents’ fears could come true.
Take Our Poll: How Long Do You Think It Will Take You To Pay Off Your Credit Card Debt?
Your Credit Card: Should You Focus on Low APR or Cash Back?
New advice: Go ahead and use those credit cards! But just be mindful of how you are doing so and not using them as an open line of cash. Always allocate dollars in your checking or savings accounts to pay off balances each month so you don’t roll over any amounts due. And be smart about researching which cards have the best deals in terms of low APR, reward perks and annual fees.
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