The Time To Start Was Yesterday! Why Did It Take Me So Long To Figure That Out?
I was reading USA Today recently and they had very disturbing story in the paper. No I am NOT referring to:
- The War in Iraq
- A corrupt politician
- An athlete that was arrested… for something
- A CEO who played games with financial numbers
I am sure all of those things were in the newspaper but I was referring to the article entitled “Generation Gap”. This was actually on the front page so hopefully lots of people read the article.
A few paragraphs into the article I read that:
“Nearly all additional wealth created in the USA since 1989 has gone to people 55 and older, according to Federal Reserve data. Wealth has doubled since 1989 in households headed by older Americans”.
To me that is very interesting. To me that is great for one segment of the population: 55 and older. To that segment I say congratulations. The problem is that I am not 55! Even though some have said I look older than that I am not even close!
In the article it stated “that income peaks at 57 and wealth tops out at 63″ so clearly I have time to accumulate net worth. But the question I always ask myself and comment to others is you only have so much time. Whatever I did or didn’t save in my 20’s and 30’s is gone - in the past. I can never get that time back and frankly I would like to because I would do a number of things different. The new worth of the different age groups is getting much bigger and creating the “Generation Gap” that the article is titled.
In our backyard we have a small creek that floods after a big rain. After that a surge usually pushes 100 golf balls onto our property. Maybe it’s time I send the boys outside to sell the golf balls 3 for a dollar!
We have someone near and dear to our family named KBW (I will use only initials). She is a very sweet young girl who is starting her career. A twenty something girl who makes a lot more than I did at her age. We have a number of discussions about saving money and sending a certain amount into a mutual fund every month. Even though I consider myself pretty persuasive at times, I have come up short in this instance. We started a fund for her and made the initial $200.00 deposit and asked her to match it (sort of) with $50.00 of her own. Which she did but hasn’t really added much since. I wish I had the chance that KBW has now all over again - because saving more money now pays HUGE dividends in the future. Saving $50.00 extra a week or a month can literally add up to tens of thousands of dollars down the road.
The article had a very interesting chart:
| AGE | Median Net Worth By Age Group |
Median Income For Head of Household |
| 20 - 24 | $3,900 | $19,511 |
| 25 - 29 | $12,030 | $33,887 |
| 30 - 34 | $42,800 | $47,236 |
| 35 - 39 | $48,940 | $48,263 |
| 40 - 44 | $98,000 | $52,371 |
| 45 - 49 | $136,190 | $62,639 |
| 50 - 54 | $152,101 | $57,505 |
| 55 - 59 | $249,700 | $62,639 |
| 60 - 64 | $244,000 | $49,290 |
| 65 - 69 | $179,000 | $36,968 |
| 70 - 74 | $207,400 | $28,753 |
| 75 and older | $163,100 | $23,618 |
These numbers are based on inflation-adjusted 2004 dollars
Source: USA Today analysis of Federal Reserve Board Figures
The article mentions that most wealth accumulation happens rapidly and late in life - after the kids leave, when income is high, debts drop, 401(k) accounts fatten and home equity swells, according to Fed data. So for me there is still time…maybe…Since I had kids later than most and might be in a wheel chair or nursing home when they are in college I might have made a bigger mistake than I originally thought.
The article ends with this quote: “I have friends with every new gadget out there. They have a big house, two cars, college loans. I have no idea how they’re making it on their incomes.” The article also talks about how younger people might not look poor. They are so much deeper in debt than I was at their age - student loans, credit cards, mortgages, car loans - that their net worth isn’t where it could be at this point of their life.
KBW and others: don’t make the same mistake I made years ago. You have a big opportunity NOW - please make the most of it. You can save the “thank you” when you are 30 something and have lots of extra money for a down payment on a house or something else.
- Does this tune sound familiar to you?
- Have you found a way to get through to this generation?
- Do you have any saving secrets that you are willing to share?
All of us look forward to hearing from you!
June 25th, 2007 at 10:15 am
This is a big problem, Merrill, and the availability of easy home equity credit linked to formerly-rising property values has made it simple for a lot of people to already spend what was their major source of wealth accumulation — their home. The idea of accumulating retirement funds late in life is fine — provided there is no unexpected loss of job or health, kids needing help, loss of marriage, etc. And by that time one gets very little assist from the compounding of one’s investments. Essentially, one must save close to dollar-for-dollar for retirement.
I have only one suggestion for your young friend: 401(k). If he can get into a plan and save the typical 5-6%, that will help a lot. The tax deferral covers part of the savings so the bite is not so big, and because it happens through payroll it doesn’t require action on the employee’s part other than signing up. In fact, new plans sometimes default to participation so the employee has to “opt out” in order not to save. Just make sure that your friend does not borrow her balance out of the plan, as many people now do. Then she’s back to the starting point.
June 25th, 2007 at 10:41 am
Coming from parents who immigrated to this country and had lived through the depression, I learned early on, to only pay cash. I’ve never experienced credit card debt, but I can see how easy of a trap it could be to fall into. I highly recommend investing in 401K plans and real estate, they are basically fool proof. 15 years ago, when my niece was 23 with her first “real job”, I told her to sign up for 401K, she didn’t really want to, but “reluctantly” followed my suggestion. Today, she is forever thankful and a HUGE advocate in convincing younger people to invest in their 401K plan. My real secret to investing/saving? Having a brother in law who is a financial planner really helps, I’ve threatened him that if I have no money when I retire, I’m moving in with him, so that definitely gives him a vested interest to make sure I’m investing properly to be financially secure upon retirement!
June 25th, 2007 at 11:22 am
IF KBW’s parent’s are well-off, she may not have to worry about retirement savings because she could expect a wealth transfer to occur before she reaches retirement age. Of course, she could always marry someone wealthy too.
Neither option is/was available to me. In my early 20’s I lived beyond my means and juggled various credit card statements to keep myself afloat. Eventually I grew to hate the debt and interest payments. So, as my career evolved, I kept my lifestyle “in check” so I could start to eliminate the debt and start planning for the future. Getting that monkey off my back was the greatest lesson of my 20’s. I received lots of well-meaning advice from my parents, but it was fruitless. Instead, the pain that corresponds with lots of debt was the trigger that compelled me to live within my means.
June 25th, 2007 at 8:31 pm
Hi Merrill,
Recently I read Suze Orman’s book “Woman & Money Owning the Power to Control Your Destiny” and have been telling everyone I know what a great read it is. It’s an eye opener for any woman, young or old, and is filled not only with practical advise but with very specific how-to’s concerning money.
Suze’s tale of who she is and who she came to be is a spellbinding tale of the good hearted waitress.
And, the last two pages read (in the right frame of mind) will make any woman cry and… proud to be who she is.
I’ve given this book to two friends of mine that are 25 years old; I think you should get it for KBW. It’s a charming, well written, easy to read book about the importance of handling money well.
I do hope this helps. It’s so hard to make someone understand that the best thing about having money is the freedom it brings.
Good luck.
twyla
June 26th, 2007 at 3:11 pm
This is the first time I have posted a comment on your blog Merrill but I am an avid reader. This topic strikes an interest with me because not only am I close in age with KBW (I’m 27), my father has always presented graphs and charts of 401(k) plans and their benefits since I’ve been about 18.
When you look at the data, every little bit saved now reaps huge benefits later down the road. It is amazing how fast your money can grow with the compounded interest over time. Not to mention, most 401(k) plans are now transferable.
I see my friends, all well employed, driving fancy new cars, buying new boats, eating out for every meal in fine restaurants and purchasing their first homes. I know what they make and I don’t know how they do it. I have come to two conclusions. First, they are either living off Daddy’s money or second, they are in debt up to their eyeballs. Your first home should not cost in excess of $300 K.
As a result from my father’s teachings, I have learned to sacrifice as much as possible now to live a better life later. There is nothing I enjoy more then salt water fishing. However, I am in no position to buy a boat worthy of going offshore. I live in a modest apartment and cut every coupon I can. How many males age 27 do you know of that cut coupons?
I find if I put at least 12% of every pay into my 401(k) on a pretax basis, take a few hundred dollars after that to dump into an ING or mutual fund account, it is a good start. Sure, I pack a lunch three days a week and ride my bike into the office but it is a sacrifice I’m willing to make at age 27 for a 60 foot Viking when I’m 40.
June 27th, 2007 at 8:16 am
Twyla,
Thanks for your comments. Suze Orman’s book “Woman & Money Owning the Power to Control Your Destiny” sounds like a terrific read.
Sounds like I know what to get KBW for her birthday!
Thanks again.
Merrill
June 27th, 2007 at 8:20 am
Todd,
Interesting comments. It seems like you have a plan and it clearly is working. Your comment about your friends is very much of interest to me. I often think about how some people can afford what they have and come to the same conclusion you did. I do think the amount of money that people are in debt is astronomical at this point. Everything you read supports that premise which is very disappointing and disheartening for the younger generation who wants everything now but really can’t afford it.
Thanks again for commenting.
Merrill
June 27th, 2007 at 11:33 am
Where do kids learn this stuff?
I’ve often thought for a long time there should be programs in High School, but more importantly in college… in their senior year.
Along with teaching students how to write a resume and find a job…
there needs to be a program that teaches simple “practical” instruction on
Finance - how to save for retirement, how to save for your first home, the importance of good credit, how to buy stocks, bonds, real estate, etc. Since many marriages fail over money, it astounds me the schools have never tackled this.
One good lesson for this young woman is the importance of working for companies that offer a 401K program; early on in our careers who knew?
June 28th, 2007 at 9:09 am
I agree completely with Karen that there should be courses that teach students about practical finance, but I think they should be in high school.
As soon as kids are in college, the credit card offers start to come in fast and furiously, and it is hard not to overspend if all of your friends are doing it.
A course in high school where people “suffered the consequences” of high credit card debt in a learning situation could help many kids think twice before falling into it themselves. (I know it probably won’t be the majority, but at least if the course had an impact on some, then it would be a start).
I’ve heard that there are some of these practical finance courses out there. Do any of you know of kids who have gone through them, and whether they had any effect?
Are any of you close to teachers who could describe whether such courses have been considered in their schools, and if so, what kinds of obstacles they face?
June 28th, 2007 at 2:20 pm
Hey Merrill,
I hope you’re doing well since we last spoke during our interview! I really liked this posting because of how young I am and how relevant it is. I see so many people my age that have a ton of student loan and credit card debt, yet they still spend like there’s no tomorrow. I cut coupons and contribute to my 401k and save from my paychecks, but I also once read in a women’s magazine one young woman’s secret to saving, and I’ve taken to it. Any time I get money that is unexpected- and by unexpected I mean it isn’t part of my paycheck- I put it in my savings account. Birthday money, Christmas money, bonuses, tax refunds, rewards checks from my credit card, mail-in-rebates, etc. It all goes into the savings account. You’d be amazed at how much you can save in a single year. That combined with saving a little bit from my paychecks — all in an high-interest ING account — allows the money to grow very quickly. It keeps things in perspective and keeps me out of debt, which is a great place to be! And when you don’t go and blow every bit of money you get, then when you do want to spend more on a vacation or something else you really want, you don’t feel guilty about it because you’ve been saving more all along, and it doesn’t break you. I only hope that more young people can read the tactics that all the readers have discussed in their responses to your entry so they can enjoy life and not be burdeoned with debt.
June 28th, 2007 at 5:12 pm
Karen/Freddie,
I like the idea of course work in high school. I wish i knew a few high school teachers to ask them if this is possible and what courses if any they currently offer.
This seems like a natural - if I was a principal I would add a financial course and “how to survive your freshman year in college” in a heartbeat.
The drop out rate and kids taking 5-6 years to complete college is way too long.
Thanks for your comments.
Merrill
July 2nd, 2007 at 11:06 am
Merrill, Good subject matter.
I am reminded of the story that someone told me. If a 20 year old saves $100 a month and stops when they are 30 they will have more money at retirement than someone who started at 30 and saved $100 a month until they retired.
Also another course they should have at high school: How the opposite sex think and feel?
July 2nd, 2007 at 11:17 am
Owen,
Great comments and a fantastic example! KBW - I hope you are reading these comments - they can work as long as you put a plan in place.
Remember it isn’t too late!
Merrill
July 3rd, 2007 at 1:07 pm
Our kid’s high school requires a semester of economics in their senior year where they actually learn about money. Besides the traditional course work, they start the semester choosing portfolios and tracking them and also have speakers come in to give them advice about saving, spending, credit cards, 401Ks, etc. The speakers are mostly parents and have a vested interest in providing good advice. At that age, kids will listen to other people’s parents even if they won’t listen to their own. The class prepares them to manage their money a little better in college and when they get their first job.