Today’s young people may be overly optimistic about their financial futures, despite weathering crippling student and consumer debt loads.
A new Charles Schwab survey found that 53% of young adults believe their parents will rescue them by leaving them a windfall upon their demise, allowing them to retire early and possibly accrue more debt along the way.
That’s despite the fact that more than 70% of inheritances are less than $50,000, according to the Federal Reserve Board.
The Charles Schwab survey of 2,000 Americans aged 16 to 25 revealed young adults expect to retire at 60, a full seven years earlier than when they would qualify for full Social Security benefits, based on their age bracket.
The poll also found 76% of young people believe they will have a better financial future than their parents did, yet many continue to struggle to make ends meet, with 33% saying they had to skip a meal because they didn't have enough money.
Being overly optimistic about money may also lead to bad habits, according to the survey. Respondents reported carrying $8,003 in debt, and having only $1,628 in savings on average. Worse, they were confused about debt in general, and in particular, what constitutes good debt versus bad debt.
The silver lining: Young people want to learn more on how take control of their finances, from saving for retirement (65%), to creating a budget (65%), to understanding the difference between good and bad debt (55%), according to the survey. And who do they turn to most for advice? Their parents.
Here are some tips on learning how to manage money:
- Read and heed. This year’s must-read finance books will help you learn how to get rich, save for retirement and get out of debt.
- Create a budget. Money management requires a detailed, written spending plan that factors in your income and quantifies necessary expenses.
- Save for retirement. Saving and investing in retirement plans while you work will help you enjoy financial liberation when you retire. Some of your options include contributing to a 401(k) plan through your employer, IRAs and Social Security.
- Understand good versus bad debt. It’s important to understand the nature of what you owe. "Good debt," in general, is favorable to consumers: student loans, mortgages and home improvements. “Bad debt” includes revolving credit card debt, long-term car loans and payday loans.
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