THE RULES HAVE CHANGED
If you hope to have a healthy financial future, you’ll have to learn to be more nimble.
Go to school. Get a job. Save. Buy a house. Invest.
The basic moves to ensure a healthy financial future seem easy enough. But for some people just entering the workforce, it feels like the rules have changed.
Those who were still growing up during the financial crisis in 2007 wonder: Are smart financial moves still the same?
“The rules are always changing,” said Brian Jacobsen, chief portfolio strategist for Wells Fargo. “Every generation has had to deal with changes in technology, cultural norms, politics and economics.
“The young adults of today were children during the global financial crisis. They may have been affected by seeing their parents’ anxieties, but parents may have been more affected than kids in terms of attitudes.”
During the global financial crisis, stocks tanked and unemployment rose. The labor force dealt with job losses and insecurity. Once notable saving and investment portfolios were near worthless.
“The Great Recession made homeowners and business decision makers more risk averse,” said Marquette University professor Mark Eppli.
“Prospective homeowners no longer look at home ownership as a great low- or no-risk investment with near certain upside. Business executives quickly cut expenses after the Great Recession to maintain or grow profitability. However, they have been very slow to invest in new ventures to raise top line revenue.”
Here are some examples of how young adults are dealing with - or ought to be dealing with - common financial issues.
DEBT
Rebecca Murray, 28, graduated from the University of Wisconsin-Milwaukee with a degree in social work and $30,000 in debt. She’s worked multiple jobs at nonprofits and a university since leaving school.
Murray’s $30,000 debt was above the average for students who take out a loan while in college. With a disciplined payment plan and a $5,000 education stipend through Americorps, Murray has paid down her debt to about $8,000 since graduating in 2011.
People just starting out today have more debt than their parents’ generation did at the same age.
“(My mom’s) life was so much different than mine,” Murray said. “She didn’t go to college. If she would have, tuition was so much cheaper. You could get a job and keep it for decades. It’s a different environment now.”
While taking on debt to increase future earnings can pay off, don’t take out more than you can handle in a future profession, experts say.
Traditional wisdom says getting out of debt is a key to a healthy financial future. Debt will likely accumulate at a higher interest rate than a bank account earns. For credit card and student loan debt, that certainly holds up.
Rebecca Neumann, a professor at UWM who teaches a course in the economics of personal finance, said paying off debt is like writing yourself a check because it offsets the effects of compounding interest.
“Pay yourself first: Put extra money toward debt,” Neumann said.
HOUSING
Before the financial crisis, everyone was encouraged to buy a house.
Historically, about two-thirds of adults owned homes, and the rest rented. Home ownership peaked in the early 2000s near 70 percent. Home values appreciated in the double digits each year. Then the housing market bubble burst, and the foreclosure crisis overwhelmed the country.
Eppli, a professor in the finance and real estate programs at Marquette, doubts we’ll see those returns on housing again. But with housing now appreciating at least at the rate of inflation, buying a home remains a solid decision.
Eppli said the largest problem posed by home ownership is being anchored to a specific location. The labor force, particularly in entry-level work, is increasingly mobile. Especially if you’re under