The old stereotype is that younger generations are lazy and entitled, but the reality is very different. First, they are navigating a highly complex and fast-changing world; and second, many are already hitting their full financial stride with homes, families and careers.
In fact they are now America's two most populous generations, with Millennials (those born between 1981 and 1996) numbering over 74 million and Gen Z (those born after 1997) close behind, at around 71 million.
Right now they are wrestling with financial challenges very different from those facing Gen X and Boomers. While older Americans are winding down their careers, Gen Z and Millennials are ramping up – which requires very different money priorities and strategies.
Some typical questions younger demographics are facing right now:
How can I afford a home?
Average housing prices have been rising for many years now, essentially since the subprime mortgage crisis of 2007 (although finally softening recently). As a result, most metro areas around the country are considered unaffordable when compared to income levels, according to Realtor.com.
It's a tough spot for would-be homeowners, which means they have to be flexible and realistic about how much house they can afford, the locations they're targeting, and how long they will have to save up for a down payment. If it's just not within reach, then renting may be the right strategy until the housing market settles into a more sustainable price range.
How can I deal with student debt?
College tuition may be at record highs, but the goal is always to graduate with as little debt as possible. Typical strategies involve filling out the FAFSA form, which will unlock state and federal aid packages; tapping private scholarship money at sites like College Board's Big Future; looking at in-state public institutions rather than pricey private ones; and exploring work-study options that bring in part-time income during the school year.
After graduation, explore the repayment plans that make the most sense for you -- and make sure not to miss obligations, which would damage your credit record for years. For those in public service, keep in mind there are debt forgiveness plans after a certain number of years in the workforce.
How can I start retirement saving?
It's almost impossible to overstate how important an early start is for your savings, thanks to the power of compound interest. If someone starts at age 50 instead of age 25, they would lose out on 88% of the investment gains, according to the National Institute on Retirement Security.
So the rule of thumb is the earlier, the better, in setting up retirement accounts like an employer 401(k) or a personal IRA (traditional, or Roth versions). Non-retirement savings are also critical – for instance having an emergency fund of 3-6 months' worth of living expenses, or a fund for longer-term goals like a down payment on a home. High-yield accounts offer generous interest on your savings these days, sometimes 4%.
How can I set up my growing family for success?
When starting a family, that's typically when young couples think about securing life insurance, to protect partners and children in case anything happens. A common rule of thumb is the 10x rule, getting coverage worth 10 times your annual salary. So-called 'term' policies – say, lasting 20 years – are the most affordable option.
Those with young children might also want to think about starting a 529 college savings plan, where invested funds can grow over time until your child heads off to university. Start early, and enjoy the generous state tax deductions that are typically offered. Later on, you will be very glad you did.