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Robert Warner

Milliennials and Money: Starting the Conversation

Parents of Millennials know that when it comes to money and finance, Millennials are a paradox. They’ve been characterized as short-sighted fun-seekers, often living back at home with their parents, and more concerned about vacation time than building a career.

But a closer look at this generation, roughly those who were born in the 1980s and 1990s, reveals young adults who view the financial world through a very different lens, framed by the Great Recession, the burden of record student loan debt and a tight job market. It’s made them question your path because they’ve seen firsthand that things have started out differently for them.

That perspective, and their experiences in a tough, sometimes volatile economy, have caused many Millennials to delay buying homes or saving for retirement, preventing them from establishing themselves financially and planning for the long term. A recent Bankrate Money Pulse survey and other studies show that although many Millennials save regularly, as many as two-thirds believe they can’t afford to invest in the stock market, including through company retirement plans. Others just avoid risk, having seen losses suffered by their parents.

Many parents want to reach out and talk about money and financial planning with their Millennial children, but that can be a delicate proposition. Clearly, you want the best for them, and you likely have the benefit of experience (we all make mistakes) and wisdom gained over time to impart truly valuable advice. But you don’t want to preach or dictate because you know they’ll likely tune you out.

However, taking the right approach to “The Money Talk” could lead to a willing audience. And choosing a few primary nuggets of advice and then finding – or creating – the opportunity to have a conversation will be key to the beginning of what could be a cherished, valued legacy of financial counsel in your family.

How to start? Depending on your ongoing relationship with your children, a financial discussion could be as simple as a Saturday morning conversation over coffee – in person or maybe via Skype. And some parents have chosen a more old-fashioned yet effective conversation starter: a letter, as illustrated in a recent New York Times article. In your letter, you can share your financial triumphs and mistakes, your dreams and your regrets, as well as a dose of advice.

Ideally, your letter will jump-start the conversation, and it could launch a lasting collaboration as your children build their financial future.

Start that conversation by explaining why financial planning is important, and why starting to plan sooner rather than later is helpful. Help them find information on investing and personal finance or offer to set up a meeting with your own advisor to help them get started. A meeting with your advisor has the added benefit of guidance from an outside professional rather than mom or dad. Here are some specific suggestions to offer once you have set the stage:

Establish Credit

A good credit history will help your children obtain mortgage or vehicle loans, apartment rentals and sometimes even jobs. Tell them to make sure their credit cards send reports to the major credit bureaus, to help build a credit score. Encourage them to pay credit card balances in full each month; even a single late payment can damage a credit report for years and unpaid credit card debt can accumulate and carry high interest rates. If they have student loans, they should consolidate them into a single monthly payment and make sure to pay on time. Finally, stress the importance of monitoring credit scores to guard against fraud and identity theft and to ensure an accurate credit history.

Contribute to a Retirement Plan 

For those with a 401(k) or other qualified retirement savings plan, suggest they contribute as much as they can afford, targeting at least as much as the employer match, if there is one. Saving early in a career makes a significant difference.  For example, two individuals who contribute $200 per month to a retirement account with an estimated six percent rate-of-return will have very different results depending on when they began contributing. The person who starts at age 25 will contribute $96,000 that will grow to $400,000 at age 65. In contrast, the person who waits until age 35 will contribute $72,000 and will have $200,000 at age 65.

If their employer does not offer a plan, an Individual Retirement Account (IRA) or better yet a Roth IRA is a good alternative. They can contribute up to $5,500 per year. Contributions to a Roth are tax deductible, but qualified withdrawals are not taxed.

Automate Savings

Payroll deductions not only are a simple way to ensure regular saving, they are relatively painless—your children will never “miss” the money because it goes directly into savings and accumulates over time.

Create an Emergency Fund

It might seem that among paying off debt and contributing to a retirement plan, there is little room for more saving. But preparing for the unexpected is a crucial element of financial well-being. An emergency fund can help cover costs from an unexpected medical bill, car repairs or lost income if they lose their job, without needing to rely on high interest credit card debt. Encourage them to start by contributing what they can afford after covering all expenses and retirement contributions, with a goal of reaching enough to cover three to six months of living expenses.

Consider Working with a Financial Advisor

Online tools and financial apps can be useful and convenient, but an advisor can help ensure they are taking appropriate steps to manage their money and avoid mistakes. An advisor can evaluate their specific situation and provide personalized guidance for both large and small decisions, all of which impact their overall financial plan and long-term goals.

Your initial conversation can lead to annual discussions during which you and your children can touch base on how things are going. Some may find the annual enrollment period for company benefits or tax time to be good time to catch up. It’s also an opportunity for you and your spouse to update your kids on your own retirement and estate plans and to cover issues such as health care and other needs as you age. Ultimately, talking about money can build trust between the generations as well as ensure that your Millennial children can build on the financial plan you established and nurtured for your family.

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Views and comments expressed in this blog are those of the author and do not necessarily represent the positions of Cleary Gull or fellow Cleary Gull associates.