May 9, 2019
FIRST CREDIT CARD, FIRST CAR, FIRST JOB: There are a lot of stops along the road to adulthood. But one stands out for most 18-to-34-year-olds today: cutting the financial ties that bind them to their parents.
Seventy-five percent of young adults equate adulthood with gaining financial independence from their parents, according to Early Adulthood: The Pursuit of Financial Independence, a new Merrill study conducted in partnership with Age Wave. Yet, amid uneven wages and mounting student debt, reaching that milestone is taking longer than ever.
The study found that 70% of young adults have received financial support from their parents in the past year, and 58% say they couldn’t maintain their current lifestyle without it. See the slideshow below for more findings.
Young adults have opportunities—from technology to advanced education and new career options—that their parents didn’t have. Those, plus more accessible guidance and advice, can help guide their path to financial independence.head of Retirement Client Experience and Communications, Bank of America
Looking past the financial challenges, there is a bright side. “Young adults also have opportunities—from technology to advanced education and new career options—that their parents didn’t have,” says Lisa Margeson, head of Retirement Client Experience and Communications, Bank of America. “Those, plus more accessible guidance and advice, can help guide their path to financial independence.”
Nick Giorgi, an investment strategist at Bank of America Global Wealth & Investment Management, and a participant in the BuzzFeed/Better Money Habits “50 Under 50k” financial boot camp last fall, offers the following tips to help young adults get started.
Set a budget. Apps, calculators and educational materials (all available on your smartphone) can help you track and manage expenses. Giorgi says, “A careful review of spending may reveal ways to comfortably dial back a notch and live just below your means so that you can find the money to save.”
Attack those debts. According to the study, 80% of young adults
carry debt from a variety of sources. Begin to hack away at it by
eliminating debt on high-interest credit cards—then pay off the entire
balance each month. You can whittle down student debt if
you qualify for a repayment plan that bases your monthly bill on your
salary. “That could lower your payments, says Jean Y. Kim-Wall,
managing director and wealth strategist at Merrill’s Strategic Wealth
Advisory Group. But the best solution is still old-fashioned
budgeting. Try to pay more than the minimum due every
Start saving and investing now. Even if retirement seems eons away, it’s important to contribute what you can to your company’s 401(k) plan and potentially even to an individual IRA. Many companies match an employee’s contribution to their 401(k) up to a certain amount—by not putting in at least that amount, you’re leaving money on the table. Starting early gives your savings time to compound and grow. The money goes in before you’ve paid taxes and grows tax-free until you withdraw it in retirement. “This is your government giving you a tax break, so take advantage,” Giorgi says. “And try to resist the temptation to withdraw money from your 401(k) to cover debts or unexpected expenses.”
A careful review of spending may reveal ways to comfortably dial back a notch and live just below your means so that you can find the money to save.investment strategist, Bank of America Global Wealth & Investment Management
The majority of parents (83%) who provide support say they want to help their children get ahead. But being over-generous can potentially endanger your own security in retirement, putting your children in the position where they may need to support you as you age. Setting boundaries could help you—and them.
Protect your own finances.
“As much as you want to help your kids, time is on their side, not yours,” Giorgi notes. “While they have decades to recover from a market downturn, you might need to keep saving until the moment you retire.” Borrowing from savings or pausing contributions to help your kids could jeopardize your own financial independence.
Set transparent rules. The help you offer will depend on your personal resources and values, and there’s no one right approach. But consistent rules and expectations are a must. “My parents were very clear about their own financial situation and what I should and should not expect,” Giorgi says. “These conversations weren’t always easy, but they were really helpful.”
Source: Age Wave and Merrill, Early Adulthood: The Pursuit of Financial Independence, 2019
Age Wave is not affiliated with Bank of America Corporation
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