Millennials: Beware of Financial Advice From Your Parents

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From birth, we're raised thinking mommy and daddy know best. They have our best interests in mind when they scare away tattooed teenage boys, keep the liquor under lock and key, and set our curfews earlier than those of all our other friends. Unfortunately, when it comes to money, mommy and daddy might be leading you astray.

Financial literacy rates in the Millennial generation are abysmal. This year the Treasury Department and Department of Education tested the financial literacy of 84,000 high schoolers, who scored an average of 69 percent.

With little to no financial literacy taught in our education system, children have no choice but to learn from dear old Mom and Dad. But if Mom and Dad were never taught -- or never bothered to learn -- how to appropriately handle money, they sure aren't the ones who should be giving financial advice.

If you've ever heard your parents say, "Don't get a credit card," they were wrong.

Credit cards are one of the easiest ways to build your credit score. Granted, establishing new credit only makes up 10 percent of your score, but if you aren't paying off loans yet, it might be the only way for you to establish a line of credit. Length of credit history makes up 15 percent of your score, so the longer you've had a "healthy" history, the higher your score will typically be.

Parents are often reluctant to give their college-age children access to plastic, but if you know how to treat your card right, it'll pay off. When you graduate and start looking for an apartment, a respectable credit score is important to your landlord, while a lack of one can prevent you from signing a lease.

If you've ever heard your parents say, "Keep a monthly balance on your credit card," they were wrong.

Somehow, parents heard a rumor that keeping a monthly balance on your credit card will help your credit score. They spout some nonsense about how paying the minimum shows responsibility and increases your score.

False.

Carrying a balance does nothing to improve your score and instead costs you more money because you're accumulating interest on the balance. Instead, pay off your credit card in full each month (which means not charging more to the card than you know you can afford).

If you've ever heard your parents say, "X,Y or Z college is worth the student loan debt," they were wrong.

Millennials are drowning in student loan debt. As a generation, our debt is so horrific it's predicted to delay our retirement age until 73.

For many millennials, it's too late to turn back now; the debt has already been accumulated. The only hope is to diligently, or quickly, pay down debt, and simultaneously start figuring out how to save for retirement from the moment you get your first paycheck. The other option is to start a side hustle and increase your influx of cash.

For the younger millennials and Generation Z, there's still hope.

When considering college, apply to every scholarship you qualify for. Sometimes your GPA doesn't matter as much as your height or your ability to call ducks.

It's a good idea to set your pride aside during your college-decision-making process and really evaluate whether the ROI of your major at X, Y or Z school is worth tens of thousands of dollars in debt. If not, consider state schools, smaller liberal-arts colleges, or simply choosing the college that offered you the best financial package.

If you've ever heard your parents say, "Don't invest in the stock market; it's just gambling," they were wrong.

Yes, 2008 was a tough year, and the market took a tumble. Boomers lost money and some saw their retirement accounts take a hit. Unfortunately, this led to the millennial generation developing a great mistrust of the stock market.

While we might be reluctant to get in bed with the stock market, it's certainly still willing to love us.

The greatest advantage for an investor is time, and time is exactly what 20- to 30-year-olds possess. If you're not quite ready for index funds, mutual funds or buying individual stocks, you should at least contribute to your company-matched 401(k)s or open a Roth or Traditional IRA.

If you've ever heard your parents say, "Have babies," they were wrong.

Starting a family is certainly a personal choice, but not one you should be making based on parental pressure.
Raising a child is a tremendous financial commitment. In 2012, it cost middle-income parents $286,860 to raise a child from birth to age 17. If you're willing to pay for college in full, then you can tack on an extra $100,000 or more. For many millennials stuck in the red, starting a family could complicate an already stressful financial situation.

Parents mean well, but sometimes their advice comes from a negative personal experience or a lack of knowledge. Instead of always trusting their financial advice, be sure to educate yourself and check against credible sources.

Erin Lowry writes for DailyFinance on issues relating to Millennials, money and personal finance. She's also the blogger behind Broke Millennial, where her sarcastic sense of humor entertains and educates her peers. Visit her there or follow her on Twitter, @BrokeMillennial.

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r_womer

Great article, My parents have recently taken out a reverse mortgage-At first I thought it was a horrible idea since we have had the home in our family now for many generations but after speaking to my lender they explained that my parents home be mine as long as I can pay off anything that the borrow.

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November 28 2013 at 2:37 PM Report abuse rate up rate down Reply
tricia malone

The reason the high school kids are clueless has nothing to do with advise. It has to do with example. They have watched for years as parents spent themselves into bankruptcy. Watched as they got 2nd and 3rd mortgages to pay off vacations and stupidity and then listened as these same parents blamed the banks, the politicians, and the greedy corporations for their stupidity. Our kids do not have a decent example to follow and they hear their parents saying they are special just for breathing and figure they are owed a slice of the pie before they even work their first hour.

November 19 2013 at 9:06 PM Report abuse +2 rate up rate down Reply
Steve

Hmmm. Who are these parents of whom you speak??
My son had a credit card as soon as he had a driver's license and got his second card before he left for college; my wife and I talked just this evening about getting a credit card for our age 16 daughter. My son pays credit card debt as it accrues, making a payment about once each week. My son, a college sophomore, does not not have a student loan (if he or his sister ever needs a loan to pay for college, I’ve committed to making the loan payments – they will not graduate with debt). Both my children have been told their entire lives that savings accounts lose money over time due to inflation and investing in stock-based mutual funds is the most effective way to grow their money; in fact they moved most of their money out of their savings accounts when they were 16 and 12, respectively. While my children know I love them, they also know how much they cost.
As far as I know, most of my friends who have children the same age as mine or slightly younger have taught them similarly.

November 19 2013 at 8:12 PM Report abuse +1 rate up rate down Reply
nkowalak

A very old sweet father,told a newly married couple who wanted to purchase a TV ,to go out and buy one on credit! And then two weeks latter go back and pay the bill off! All that good advice left that sweet couple with a 826 credit score. Guess he knew what he was talking about and the couple listened--imagine that! It is great to have good credit, where people make their mistakes is over spending and paying interest! Now the young couple are old, and their advice to their children--never pay any interest that is not deductible on your income tax form! When that law changes, and someday it will, then it's best to pay cash--may take awhile to save up, but if you want it bad enough, you will do it.

November 19 2013 at 7:01 PM Report abuse +2 rate up rate down Reply
cwmfm

This is some of the lousiest advice I've ever seen. No... avoid credit cards; they make bankers rich and you looted. Have a family, and don't let pressure from our fairy-tale media tell you it's old-fashioned, oppressive, or silly. Remember, this is the media that helped entrap us in Iraq and never saw the 2008 meltdown coming. Student loans? Be prudent with them. Millennials are drowning in debt because they took too many.

November 19 2013 at 6:08 PM Report abuse -1 rate up rate down Reply
2 replies to cwmfm's comment
vikk121

Absolutely agree, cwm. My parents NEVER EVER gave me any of this advice and I know of nobody else who received this dumb advice from their parents. My parents told me NOT to get a credit card when I was in COLLEGE, not working (duh). My mother taught me all about getting the store discount for using the store card, and THEN turning around and paying it all off. My parents NEVER told me not to invest in the market. What my father said was not to invest in the stock market w/ the mortgage money! DUH. Where does aol find these idiots who write this bs????

November 19 2013 at 7:12 PM Report abuse rate up rate down Reply
Steve

How does a credit card "make you looted?" I pay my credit cards when -or before- they come due. My 19-year old son does likewise. And by prudently using debt instruments, my credit rating is 796 and my wife's is 807. If people use debt prudently, they build a strong credit rating and are able to borrow as needed.
If, however, people spend beyond their means, it might not be the fault of evil bankers; it just might be their own fault.

November 19 2013 at 8:16 PM Report abuse rate up rate down Reply
itchy1958

Who wrote this? Was it the same clowns who sold us the obamacare fairy tale?

November 19 2013 at 5:38 PM Report abuse -1 rate up rate down Reply
solarious

The way this knucklehead is running the country into the ground it won't matter what our parents taught us.....................

November 19 2013 at 3:30 PM Report abuse -1 rate up rate down Reply
kaustin

The idiot who wrote this article should be censored. My Grandfather was Vice President & Comptroller for a major banking institution here in upstate NY for years. He told me back in 1994 that the stock market was no place to put my money. He said the market was a fraud and on the verge of collapse. Turned out he was very close to right. Thank you, but I'll take advice from him before I'll take it from AOL.

November 19 2013 at 3:15 PM Report abuse -2 rate up rate down Reply
1 reply to kaustin's comment
Steve

I don't know what your grandfather was smoking down at the bank, but the evidence is clear. Over time, a diversified, risk-based investment approach that includes primarily stocks or stock-based investments not only preserves but grows invested dollars more and more reliably over time than any other approach, and certainly far outstrips reliance solely on savings accounts, CD and bonds. This isn't an opinion, it's well and clearly documented and requires on 90 seconds of online research to verify.

November 19 2013 at 8:21 PM Report abuse +1 rate up rate down Reply
sindfetish

If ya run outta $$$, just rob a bank.

November 19 2013 at 3:12 PM Report abuse -2 rate up rate down Reply
1 reply to sindfetish's comment
maletred

You've got it the wrong way around. When the Banks run out of money they rob US!

November 19 2013 at 4:23 PM Report abuse +1 rate up rate down Reply
lmaar2

I'm not sure if the bad advice tips in this article were from Ms. Lowry's own parents or just the parents of other millenials. Either way, it's all bad advice and she's speaking for the limited group of parents with no financial savvy that she knows. The above is not the financial advice I got from my parents (boomers) and it's not the adivce I (a gen Xer) have given my millenial son. I guess, though, if the average score on a financial literacy test is only a 69, more people are just as ignorant of sound finances as the writer.

November 19 2013 at 2:00 PM Report abuse +2 rate up rate down Reply
2 replies to lmaar2's comment
graphikzking

Honestly our family employs many people and often times we see people living paycheck to paycheck and we pay an EXTREMELY fair wage. Our bookkeeping girl makes north of $60k per year and her husband all works (and has to make at least $50, but they constantly have financial troubles that they ask us for loans.

They don't have credit cards but they do run up other types of debt. It's just the norm in the US society that so many people are not financially educated. Maybe you and I know more but I see everyday many people that have ZERO financial education.

I'm not talking about high school drop-outs either. I'm talking about many people with houshold incomes in excess of $120k per year and both work decent jobs. Have nice cars, nice houses (not too much but just enough to make things tight for them).

I'm so glad that I grew up watching my parents struggle, it makes me much more educated on how far a $$ can go.

November 19 2013 at 3:20 PM Report abuse +1 rate up rate down Reply
1 reply to graphikzking's comment
vikk121

graph, it doesn't take a rocket scientist to know how to NOT spend more than what you make. I THINK the ppl you mention are not financially "stupid", but they just want more than they can afford. They see you - the boss - pull up in a nice car and want the same. And nowadays, ppl can find a way to get almost anything they can't afford. I bet you your bookkeeper KNOWS the right way, but I also bet you she spends on things that aren't necessities.

November 19 2013 at 7:18 PM Report abuse rate up rate down
graphikzking

Also, most people try to solve the money problem by making more, working more etc. Instead of working more, I always look at what I can take away that I can live without and not really care either way.

There have been so many things that I've dumped and don't miss one bit. I do love that I have MANY more hours with my family to spend time with.

November 19 2013 at 3:22 PM Report abuse rate up rate down Reply