When you’re in your 20s, you can often still use the helpful guidance of your parents, especially when it comes to money. Whether it’s gentle encouragement to save a bit more, find a way to set money aside for retirement or avoid credit card debt, there are plenty of words of wisdom that older generations can pass on. Here are 10 useful conversations to have with the millennials in your life:
Risk is not necessarily bad
Having seen the devastating effects of the recession firsthand, either on their parents or themselves, millennials tend to shy away from any sort of financial risk. The stock market can seem like a scary black hole to avoid instead of a useful investment vehicle. As a result, millennials often miss out on potential gains in the market. Financial advisors urge millennials to consider taking on more risk in their investment portfolios now, when they have decades to go before retirement.<=”ndn-video-player-2″ class=”ndn_embed ndn_embedding ndn_embedContainer ndn-widget-embed-2 ndn_embedded” style=”text-align: justify;” data-config-distributor-id=”90080″ data-config-site-section=”ndn1_usnews” data-config-height=”9/16w”>
Even now, when 20-somethings still have three or more decades to go before retirement, saving for it is important because money compounds over time. If you save $250 a month for 40 years, and it grows at 6 percent annually, you’ll have almost half a million dollars saved up at the end. But to get to the same amount when you start saving at age 40, you’ll have to put away $1,000 a month, according to calculations by the financial services firm TIAA-CREF.
Technology is your ally
New tools like SigFig, which evaluates and fixes your investment portfolio based on a risk assessment and other factors, make it easier for Gen Y to access expert advice. “Over the last 10 years, a whole new set of service providers started serving people with lower net worth,” says SigFig CEO Mike Sha. That means you can get expert advice, even if you don’t yet have huge wads of cash.
Facts, facts and more facts
Millennials like to manage their own money, since they saw their parents lose out when they outsourced money management to financial institutions during the recession. That’s part of the reason Gen Y enjoys self-education in the form of webinars, interactive websites and online tools. They even like talking to financial advisors through new ways that go beyond face-to-face meetings, such as over social media, text or Skype calls.
Saving is still the best policy
Most millennials believe “saving” is the best money advice they’ve ever received, which means parents and other adults should feel free to share it often. Studies also suggest that people who begin saving as teenagers tend to save more as adults, too – another reason to get an early start.
Diversification protects your money
Gen Y witnessed the Bernie Madoff scam and collapse of Lehman Brothers and Enron, among other news-making events of the recession. As a result, millennials are primed to embrace the power of diversification, or investing money in a wide range of securities, to protect themselves from the downfall of a single market sector.
All debt is not bad
Gen Y is so wary of debt, having seen the subprime mortgage crisis up close, but that can scare them away from good investments, including first home purchases or a grad school education. Parents and other adults can help them decipher the difference between good investments and lost causes by helping them calculate the expected return and risk.
But you should pay off high-interest rate debt as soon as possible
Many millennials graduate from college with massive loans that can cause a lot of stress. Developing a plan to pay off high-interest rate debt, especially credit card debt, can help 20-somethings reach stable financial ground. Variable-rate debt is especially dangerous, since it can skyrocket as interest rates climb.
You are your own biggest investment
Building up skills, education and networks will help you maximize your earning power. But the fear of debt can keep 20-somethings from realizing their full potentials, too. Parents can encourage students and those early in their career to make the investments that pay off, like student loans.
It’s OK to trust the market (at least a little)
Given millennials’ distrust of the market, they might need an extra push from older adults in their lives to take the plunge and start investing. Without the market, they lack a viable way to grow their money over time and protect themselves from inflation. They also risk losing out on market gains as the market corrects itself after downturns.