Real talk. Financial literacy is a problem in the U.S. and, unfortunately, it is not getting any better for millennials. They are more financially vulnerable and face greater challenges than any other generation.
Many millennials are aware of the uphill battle they face with student loan debt and taking on the burden of retirement planning on their own, however many are still overwhelmed or unaware when it comes to their finances. According to The Financial Industry Regulatory Authority (FINRA) recent National Financial Capability Study, 22% of millennials spent more than the income they earned, and when participants were given a quiz to test their financial literacy, millennials only were able to answer 2.6 of the 6 questions correctly. By comparison, Gen Xers scored 3.2 out of 6, and baby boomers scored 3.6 out of 6.
We spoke with Emma Gotschall, Assistant Vice-President, Commercial Lending Officer at Frost Bank and HYPE Vice-Chair to learn more about some of the most important financial topics impacting young professionals and how they can be a little more financial literate to assist in planning for the present and future, especially in these uncertain economic times.
Many young professionals struggle with starting and maintaining a budget. Do you have any recommendations on how to start budgeting and then keep it up?
Starting a budget doesn’t have to be a daunting task, especially with all of the resources available today. First and foremost, I would recommend making a list of your personalized financial goals, both short and long-term. This will help you think through the reasons you’re creating a budget, and what you want to accomplish. Setting specific financial goals with deadlines helped me organize my budget and understand just how important it is. Next, I would also recommend doing your own research. No matter what your specific budgeting goals are, I guarantee that you can find additional, free guidance, tools, templates, and apps that are available to help you achieve them.
From traditional IRAs to 401ks… there are a lot of different types of savings plans out there. What are the differences? Any advice for trying to determine which ones are right for you?
The main difference between these traditional retirement savings accounts is that a 401(k) plan is created and sponsored by your employer, while IRAs, or Individual Retirement Accounts, are opened by the individual, themselves. If you have a 401(k) through your workplace, this plan is a great place to start. A 401(k) allows higher annual contributions, which are always tax-deductible. Again, my advice would be to conduct your own independent research: Gain a better understanding of the differences between IRAs and 401(k)s, learn more about what your employer offers, and decide which retirement plan aligns best with your personal financial goals.
You hear a lot about starting to plan for retirement early. Is there a good “rule of thumb” for how much to save at certain ages?
Start saving for retirement today. By starting your retirement savings plan now, regardless of your age, you’re utilizing the benefits of time and compound interest. One thing to note is if your employer offers a 401(k) plan that offers to match your contributions up to a certain percentage, always contribute at least up to the maximum percentage.
The coronavirus and oil prices have significantly impacted our region’s economy. Do you have any advice for young professionals that have been furloughed or laid-off?
During these unprecedented and difficult times, it is especially important for young professionals to keep a positive outlook. Recognize and remind yourself that these extenuating circumstances which led to your current employment situation do not reflect your hard work and accomplishments. Know that this is not your fault and strive to view this as an opportunity to pursue other interests or learn a new skill. This is also an opportune time to look at your finances and budget.
A problem that has been highlighted during these uncertain times is the number of Americans living paycheck to paycheck, do you have any suggestions on a savings goal that young professionals should strive for in an emergency fund? What is the best type of account to keep this fund in?
It is recommended by financial experts to have three to six months of basic living expenses in your emergency fund. A separate, high-yield savings account of some kind is probably the best place for your emergency fund because it will earn a return rate, while remaining accessible.
Want to test your financial literacy skills? Take the FINRA’s Financial Literacy Quiz here.