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10 Financial Problems to Watch Out for When Dealing with Millennial Clients

The Millennials are officially old enough to take over the workforce and start financial planning. Are you ready for them? Whatever the answer, many among this growing segment of the population are themselves not ready for real-world finances, leading to any number of rampant financial problems. Here are 10 of the most common to watch out for:

Low Financial Literacy

According to a recent report from tax and consulting firm PricewaterhouseCoopers and the George Washington University’s Global Financial Literacy Excellence Center, when over 5,500 23-35 year olds were asked first about basic concepts around numeracy and mortgages, and then more complicated issues like basic asset pricing, inflation, and risk diversification, only 24 percent of Millennials demonstrated basic financial knowledge and just 8 percent displayed a high level financial literacy.[i]

Reluctance to Ask for Face-to-Face Help

Millennials are often more comfortable interacting with a screen than they are face to face with a financial professional, especially when money is tight and they aren’t confident how much a planning session may cost or where to find the help they may or may not realize they need.[ii]

Financial Discontent and Discouragement

Per the Property Owner and Manager Market Report, Millennials are discouraged by high interest rates. They may have difficulty finding quality employment, and the rising cost of rental housing nationwide.[iii]

No Budget

Budgeting for fixed expenses, like rent, cable, and gym memberships, and then making rough guesses for variable costs like food and entertainment, can give individuals a general idea of where they are financially and whether they can expect to have money left over for savings, or if they are facing an unsustainable situation. Unfortunately, whether due to fear, busyness, or discouragement many young people neglect this exercise.[iv]

High Student Loan Debt

A recent survey done by Lendedu.com shows Millennials are worried about their ability to pay back their student loans, a collective debt that is now over 1.2 trillion dollars with an average interest rate far higher than that of most personal loans. [v]

Overdrawn Bank Accounts

According to The Global Financial Literacy Excellence Center at George Washington University, as Millennials gain experience and juggle unstable incomes and expenses, 30% report overdrawing their checking accounts, adding credit strikes and penalties to already unstable situations.[vi]

Risky Borrowing Behaviors

This instability is also feeding the millennial tendency towards risky borrowing.  In the past five years 42 percent of Millennials reported taking out a payday loan or auto title loan, using a pawnshop, signing for a tax refund advance, or purchasing a rent-to-own product according to the National Financial Capability Study (NFCS). [vii]

No Retirement Account

With immediate pressures like finding employment, paying down loans, and building meaningful professional and personal relationships it probably isn’t surprising that Millennials are forgetting about retirement, or just putting it off. According to a survey done by BankRate, just 36 percent of Millennials have a retirement account.[viii]

Borrowing from Retirement Accounts

And those who do consider retirement often fall short of optimal practices. According to the NFCS survey, of the 36 percent of Millennials with retirement accounts, 17 percent took a loan against the account and 14 percent took a hardship withdrawal from the account in the past year. Of course, putting off retirement savings or borrowing against them comes at the severe cost of compound interest, tax benefits, and ultimately future financial stability.[ix]

Neglecting Insurance

Between the financial knowledge gaps, immediate financial pressures, discouragement, heavy debt, and delayed life goals no one should be surprised that Millennials are also slow to get around to insurance—particularly life insurance. According to a 2015 study by LIMRA, only 11% of 18-34 year olds reported being likely to purchase policies.[x]

However, as Millennials continue to marry and have children, increasing numbers are expected to turn up at insurance offices, giving agents a rare opportunity to do more than explain the value of a life insurance policy. Instead, agents will be able to provide policies that can help with crucial issues like long-term savings, may be able to encourage young clients to visit financial professionals who can answer their questions and provide much needed insight into their financial health as a whole.

For more information call Simplicity Life today! 800.921.3100

[i] http://www.pwc.com/us/en/about-us/corporate-responsibility/assets/pwc-millenials-and-financial-literacy.pdf

[ii] http://finance.yahoo.com/news/42-percent-millennials-engaging-risky-070020678.html

[iii] http://fortune.com/2015/10/07/rents-rise-housing/

[iv] http://www.bankrate.com/finance/personal-finance/worst-money-mistakes-millennials-2.aspx

[v] http://www.npr.org/sections/ed/2016/02/07/465556666/confused-about-your-student-loans-youre-not-alone

[vi] http://www.pwc.com/us/en/about-us/corporate-responsibility/assets/pwc-millenials-and-financial-literacy.pdf

[vii] http://www.pwc.com/us/en/about-us/corporate-responsibility/assets/pwc-millenials-and-financial-literacy.pdf

[viii] http://www.bankrate.com/finance/personal-finance/worst-money-mistakes-millennials-5.aspx

[ix] http://www.pwc.com/us/en/about-us/corporate-responsibility/assets/pwc-millenials-and-financial-literacy.pdf

[x] http://www.cnbc.com/2015/11/06/do-you-need-life-insurance-when-youre-young.html

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Disclaimer

The information contained herein is for general information purposes only. Simplicity Life is not to be held responsible for the accuracy of this information. Neither Simplicity Life nor its employees provide tax or legal advice. As with all matters of a tax or legal nature, your clients should consult their own tax or legal counsel for advice. Any taxpayer should seek advice based on the taxpayer's particular circumstances from an independent tax adviser.

The information, statistics, and opinions reported herein are from sources believed to be reliable. However, Simplicity Life and the author of this blog do not guarantee the truth, accuracy, and reliability of any source, fact and/or statistic cited and no do necessarily agree with any opinions expressed by such sources.

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