As the adage says, one of the surest ways to combat fear is to confront it head on. Financial anxiety is one of those fears. For 85% of adults, concerns around unplanned emergencies, medical expenses, insufficient funds for retirement, and school loans rank as the top stressors in their life. For young, Millennial-aged adults, these concerns are even more pressing.
More than 43 million young Americans face the daunting task of paying back a student loan that averages $28,400. When asked how frightening that debt is to them, 70% said they feel it is a crisis worse than the situation in North Korea. And with it being so close to home, and the reality of close to a 12% student debt default rate, that level of fear is not so surprising.
For the majority of Millennials, the concern about lacking the funds to pay for necessities, student loans, and unexpected costs looms above every other. Their fears are rooted in reality. As they enter the workforce, begin to buy homes, and strive to lay a foundation for a successful adult life, these young people face incredible financial pressures. And for community banks, financial advisors, and others who are supporting this largest living generation, alleviating those pressures takes a set of specific, though not necessarily complicated strategies.
Four Steps to Financial Health
Ironically, despite the level of their concerns, many of these young adults also say they don’t believe their financial situation warrants a financial plan. Whether that’s because they don’t see retirement planning as relevant or because they are so focused on saving and working to pay down debt, effective planning can be the most productive – and comforting – thing you can teach and provide.
Success Step One: Budget
No doubt, paying down student loan debt takes precedence over building savings for many in this group. In just the first-quarter of 2017, student loan balances climbed by $34 billion. Nonetheless, the success of any financial plan comes down to understanding – and keeping track of – the flow of money. By helping these clients to structure a budget, you can give them valuable insights like:
- Understanding of spending behaviors and how they impact the bottom line
- Clarity around their spending habits
- A structured approach to debt repayment
- Awareness of the spending behaviors to fix
It’s certainly true that online tools like Mint.com offer a set of budgeting and spending tools. It’s likely your bank offers a set of online or app-based resources as well. But as a trusted financial expert, the personal guidance you can provide is incomparable. People don’t build relationships with apps. By offering empathy for their concerns and the resources to help alleviate them, you’re establishing a lasting connection that will benefit you both.
Success Step Two: Build Credit
As a lender, you know that a credit score is necessary for determining critical details like borrowing risk and interest rates. But for Millennials, credit represents a slippery slope, particularly if they are already burdened with crushing debt. Yet, a healthy credit history is vital for everything from competing for a job, to financing a car, to securing a mortgage.
You can help with this step by showing your client how much debt is reasonable to establish credit, and then how to manage that debt carefully to reap the benefits. Even the most educated, savvy young professionals may not understand that their credit score reflects an equation that factors:
- Opening new accounts
- Amount of the credit line utilized
- Duration of a credit history
- Regular ability to make full payments on time
With a reasonable amount of debt and careful management, credit can open doors. As an advisor, you can help your client to assess what is reasonable and to establish a useful budget. In doing so, you’re giving them a platform on which to use their credit score to enable their changing goals and needs as they age.
Success Step Three: The Safety Net
For a healthy, vibrant, single young adult (in particular) the idea of life insurance may be far out on the horizon. Even for those who do have a sense of the importance of life insurance, most Millennials say they primarily limit their coverage to what is offered through their employer.
While life insurance may seem less pressing than establishing a budget and solid credit score, you can provide incredible long-term value for your client and their future family by establishing reasonable insurance as part of a complete financial plan. As with credit, even the most intelligent young adult may not be aware of realities like:
- Premium costs reflect the age and health of the insured – so they may be able to lock in lower rates as a young, healthy adult than they will if they wait until later in life when they feel they ‘need’ the policy
- Employer coverage, while generous, often is insufficient, ultimately expensive, and tied to the job
- It is a resource to fund important decisions later in life – such as helping their own children pay for college (and avoid student debt), paying the mortgage, and even not worrying about daily expenses
Success Step Four: Invest In The Future
Not unlike the discussion around life insurance, 52% of Millennials say they would prefer not to worry about retirement investing until they get closer to their retirement date. While there’s an allure to the ‘live for now’ philosophy, it’s the responsibility of advisors to match it with a ‘grasshopper and ant’ proverb. The future is not hypothetical. Funding it is necessary.
The last success step takes into account all the others. Our finances weave through and support every aspect of life. By equipping Millennials to start their adult life with healthy credit, a clear and actionable budget, and financial protections like insurance and retirement accounts, you’re teaching them that they can quell their financial anxieties and embark on a path of long-term happiness with a few steps. And in doing so, you can put yourself in a position to walk with them all the way into the future.
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 Northwestern Mutual Financial Stressors Survey, 2017