Millennials: Beat Debt, Get Wealthy

It took me several hours to write this post. Once the final draft was complete, I was reviewing for edits when,…

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Bear with me here … I’m going to share a short story with you before getting to the feature article.


It took me several hours to write this post. Once the final draft was complete, I was reviewing for edits when, before my eyes, the characters instantly morphed into gibberish. My first thought: what the *@%?

Initially calm, I checked other files for infection. Thankfully, all was fine. So I ruled out a virus as the cause and focused on fixing the one corrupt file. An hour later, the file remained corrupt.

As calm dissipated and frustration grew at the thought of losing my work, I took a break, heading to yoga class with the intent to regain my balance. Driving to the studio, I obsessed, my head looping the same story over and over: How could this happen? Hours worth of work gone. And it was a damn good piece! Now what I am going to do? I’ll take my laptop in for repair; maybe someone else can figure out how to recover the file. But what if they can’t? What then? … blah, blah, blah, whine, whine, whine, me, me, me.

Arriving at the yoga studio, totally self-absorbed in my earth shattering problem, I was anything but balanced. After checking in with reception and removing my socks and shoes, I looked at the wall in front of me and saw an 8×10 photo with a caption written underneath. In the photo was a woman with her two young children. I recognized the woman, she teaches yoga at the studio. One of her children, a nine-year old girl, was recently diagnosed with brain cancer and is undergoing intensive chemotherapy. By way of the photo, the yoga teacher was asking her fellow yogis to share positive energy and, if so inclined, supportive donations.

Smacking myself in the forehead, my eyes finally opened. I realized the absurd insignificance of my concern. Here I am complaining about losing a teeny, tiny creation in the form of a written article, and here’s this gentle woman justifiably anxious, to say the least, about losing her daughter. Her beautiful daughter.

Whoa. I check in with my inner Buddha as I’m about to enter class. I remember that we are most out of balance when too focused on our self. Only when we practice gratefulness, when we shine light on all our good fortune, and extend compassion to those who are truly suffering, do we regain balance, and tap into our sense of generosity toward others, and our self.


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Niece One and Niece Two

My lovely sister blessed planet Earth with two daughters, my nieces, otherwise known as Niece One and Niece Two. Both are twenty-something Millennials (i.e., born between 1982-2000, or thereabouts). Both are university graduates. Both are industrious. Both want a meaningful life. Both want to make use of their unique talents and contribute to society. And both are concerned that the deck is stacked against them and their fellow Millennials.

Niece One lives in Toronto (Canada’s claim to a ‘world class’ city for those who like to compare and rate and judge … oops, I just judged the judgers). Following graduation, she spent more than six months searching for work in her field of expertise. Eventually, she landed a job with a non-profit organization. She was thrilled. The position allowed Niece One to put her skills to use and learn alongside an eclectic, stimulating mix of co-workers. The downside was salary. Niece One was paid enough to rent a small apartment with a roommate, buy groceries, slowly pay down her student loan, and go out on the town once a week.

A few years younger, Niece Two opted to stay in her home town of Ottawa, Canada’s capital city, after graduating. She would love to live with big sister in Toronto but, more practical minded, the thinking was that Toronto is too expensive.

Niece Two endured about eighteen months of hunting for a permanent job. During this time, she worked a variety of odd jobs, including part-time waitressing, a position that, to my knowledge, does not require a university degree. And, until recently, she lived at home with Mom and Dad (members of the baby boom generation, through no fault of their own), because she couldn’t afford to move out. Today, at age 25, she and a roommate rent an apartment.

That Was Then

She didn’t move out of Parent’s Home until age 25? Well, Niece Two is far from unusual in this regard. Get this: in the U.S., about one-third of all Millennials live with their parents. It’s the first time that living with Mom and Dad has outpaced living with a spouse for this age group since The People Who Are Charged With Recording These Statistics began keeping score in 1880.

Okay, it’s time to inject more perspective here. Just for fun, let’s time travel to a not too distant past. A time when our society looked different, and was different from many perspectives, including economically.

My father started his career in the early 1950s. Having graduated from university in his early twenties, he was courted by several employers because, hey, this was the Golden Age. This was a decade in which annual economic growth registered above 7% four times, and above 5% twice. If you wanted to work, be it white collar, blue collar or any other category, opportunities were there for the taking.

So he gets his first job and moves out on his own almost immediately after graduating. Within two years, he finds another job that pays better and offers more responsibility, becomes engaged to marry, buys a house, and is nine months away from pushing baby in a stroller. Oh … and no debt after graduation. What’s that, you say, no debt?! How is this possible?

Two reasons. First, government assumed responsibility for the bulk of education financing, rightly rationalizing that an educated workforce was beneficial on many fronts for society. The result being that tuition fees were a token amount, i.e., a few hundred dollars. Second, students were able to finance education costs with summer jobs, which were plentiful.

That Was After Then

Close to forty years later, the cost of education had changed but not a whole lot when you factor in inflation. When I graduated from a public university law school in 1990, my final year tuition fee was $1,750. And I marvel at the fact that I was able to live the entire academic year, from September through April, on less than $10,000; this included tuition, rent, food, clothing, bus pass, beer, pizza, you know, the usual university expenses. Sure, I borrowed some money to pay for school and that money was repaid after graduation. But most of my expenses were paid for with wages earned from summer employment. Lucky me.

This Is Now

Today, in 2017, I have three family friendly words for you about the cost of education: Oh … My … Goodness!

The same law school I attended, offering the same degree within the same time frame, now charges tuition of close to $22,000 per year. That’s just tuition! Add on the usual living expenses and you’ll see a final annual tally of between 30-40k. What about undergraduate tuition costs, you ask? In the mid-1980s, I paid $880 annual tuition to attend a well regarded public university. Today, the same school charges more than $5,000.

How, in the name of BuddhaMoney, could anyone who does not have a parent bank rolling their education complete their course of studies without racking up serious debt in the form of student loans?

As for getting a job to help pay for school costs, of course this is an option. But even if you could find work during the school year and/or summer break, the going rate is likely minimum wage which, while helpful, would not relieve you of the need to borrow big against your future. That said, finding work may be easier said than done as the economy simply doesn’t grow anywhere near as fast as it once did. And jobs, especially well paying jobs, are fewer and farther between.

Consider This: The year 2000 was the last year the U.S.economy achieved +4% growth (compare this to the 1950s growth rate, previously mentioned, or even the 1990s where 4% growth was achieved four times). Wait, it gets more troubling. In the aughts, the economy surpassed 3% growth only twice, in 2004 and 2005, before the so-called Great Recession. Since then, we’ve been mired in a slow growth, low interest rate, low inflation world where economic growth in our part of the world has not exceeded 2.5%. This isn’t good for jobs, for wage growth, or for future generations.

Albatross

In the The Rime of the Ancient Mariner, a poem by Samuel Taylor Coleridge, a sailor shoots a friendly albatross. As punishment, the sailor is forced to wear its carcass around his neck.

Well, I’m guessing there’s not too many students sporting a bird’s carcass around their neck but, today, the albatross that students wear is a lengthy debt sentence. And while past generations of college/university graduates didn’t have to contend with debt, or at least the kind of debt that slows the spring in your step, Millennials have no choice.

Because tuition costs are not getting any lower. In fact, they keep going higher. And governments have no plans to resume financial responsibility for higher education, graciously preferring to allow private citizens to shoulder more and more financial burdens.

So, what’s the consequence of loading down students, future taxpayers I might add, with excessive debt? Coupled with an economy that doesn’t generate enough well paying jobs?

A generation that rightfully believes the deck is stacked against them. A generation (we’re talking 83 million Americans and close to 10 million Canadians; a larger group than the Boomers) that puts off, maybe permanently, starting a family or buying a home because the overriding concern is paying their bills at month end. When that’s your predicament, guess what else gets kicked down the road? Building savings and investments, putting away enough for a rainy day, and contributing to retirement accounts.

Even if you, a Millennial, do pull down a good size salary, you’re still likely to start down the path of wealth building at a comparative disadvantage. Because if you’re carrying a burdensome debt load straight out of school, income must be diverted to debt payments. The result being that savings contributions are delayed until a later date or are less than what they would have been if the debt load was lighter.

Add to this a low interest rate environment that leaves banks paying next to nothing on savings accounts and high rated bonds dribbling out meager interest payments and, unlike past generations, building wealth is a more complicated process. It now involves learning about stock market investing if you want to generate any sort of meaningful return on your money.

Get Smart

Oh … I’ve painted a grim picture haven’t I? Okay, first, let me say that when it comes to getting a handle on your financial situation, its best to know your starting point. Fact is, Millennials have it tougher than the past few generations. No question.

Still, while this generation faces a tougher slog than their parents and grandparents, this doesn’t mean financial success is out of reach. Not at all! When I said something along these lines to Niece One, she shot me a bewildered look.

“Then … what do we do? I mean, I know there’s no turning back the clock and complaining is a useless exercise. But how do we make the system work for us? I hardly know anything about money management. As for investing, forget it. I wouldn’t know where to start so I just keep my money in a bank savings account.”

Bingo! (uh oh, showing my age … do people under 30 even know what bingo is?) Um, look, this is huge. I mean, money issues are with you your entire adult life. If money smarts aren’t taught at home and, unfortunately, they’re certainly not taught to any depth, or at all, in primary and secondary school, then how do you learn? Well, once the school bell has rung for the final time, you’re on your own. If you want financial knowledge, you have to go looking for information.

If you’re hungry to learn fast, then there are soooo many resources out there, from personal finance websites to books to meet up groups. For beginners, here’s a few good financial knowledge primers to snuggle up with on a Saturday night:

  1. Cary Siegel’s, Why Didn’t They Teach Me This in School?: 99 Personal Money Management Principles to Live By.
  1. Ruth Soukup’s, Living Well Spending Less: 12 Secrets of the Good Life.

If you want to go a bit slower, you know, mellow out in BuddhaMoney time, then that’s what we’re here for: to empower you about money issues and help you become wealthy in every sense of the word. And we do recommend that you visit often, not only because we love visitors but also because you get to discuss money issues with your BuddhaMoney enthusiasts at our community Forum.

Now that we’re done promoting our self in our own low key way, have a read through the following section, and learn what you can do right now to improve your financial situation.

Why You’re Reading This Post … To Learn How to Become Wealthy

  • The Basic Rule. Here’s what hasn’t changed since your grandparents day: spend more than you earn, and you’ll suffer from debt. Save more than you earn, and you’ll build a solid foundation toward financial freedom.
  • Freedom Plan. You gotta have a plan. A savings plan, spending plan, investment plan, debt plan, buying a home plan, retirement plan … whatever your goals, you have to draw a roadmap detailing how you’re going to get to where you want to go.

Why? Plans lay the ground work for direction. Plans set boundaries for saving, spending and investing. If you don’t plan your finances, money is so much more likely to go wayward and just … disappear. Or it will seem that way. In this regard, here’s a wise quote to chew on:

“Until one is committed, there is hesitancy, the chance to draw back, always ineffectiveness. Concerning all acts of initiative (and creation), there is one elementary truth, the ignorance of which kills countless ideas and splendid plans: that the moment one definitely commits oneself, then Providence moves too. All sorts of things occur to help one that would never otherwise have occurred. A whole stream of events issues from the decision, raising in one’s favor all manner of unforeseen incidents and meetings and material assistance, which no one could have dreamt would have come their way.”

William Hutchison Murray

  • Rainy Day Fund. Life is uncertain. Things happen. We can’t plan for everything. Common refrains, yes? And true. So as a form of self-insurance, do your self a favor and open a separate account that holds enough funds to cover 3-6 months of living expenses. If you can’t afford to do this right away, not a problem. What’s important is that you open the account and start contributing whatever you can afford today. Set a goal, say 5% of your monthly income. And keep contributing until you’ve built enough of a cushion to cover 3-6 months of living expenses.
  • Slay Evil Debt. Set aside a percentage of money from each pay check that goes towards paying down debt. If you owe money to more than one creditor, be sure to prioritize debt payments. The creditor charging the highest interest rate should be paid first. And if you don’t have debt, then the general rule is not to volunteer to take on debt. I say ‘general rule’ because you’ll likely take on debt to finance big ticket purchases such as a home. That’s all fine and good as long as you’ve worked out a budget detailing how you will afford to make mortgage payments and pay home related expenses.
  • Credit Cards. One credit card is all you need. A no-fee, boring, void of bells and whistles, status-less Visa or Mastercard with a reasonable credit limit. And don’t even think about using the card unless you have funds to pay off the full balance by the due date. If you can’t pay the balance in full, then you’ll be charged interest bordering on criminal … and you’ll be throwing money away. By the way, throwing money away is not part of any good plan.
  • Savings. If you sign up for the Freedom Plan, you absolutely have to save. If being disciplined is a challenge, set some ground rules for yourself, such as taking 10% of every pay check and depositing it into an investment account. And cut spending. Absolutely cut spending. Especially  the non-essentials. Like the daily $5 coffee or tea concoction you buy at a trendy cafe (do the math: at $5/day, that’s $35/week or $1,825/year!); pack your lunch; buy clothes on sale, buy anything you can on sale. The more spending you cut, the more you save, the closer you travel toward your goals, your freedom to do as you please, in a money wise sense.
  • Put Money to Work. When you invest money, your money is going to work, not you. This is what you want. Sure, it takes money to earn money. Still, even if funds are tight, if you’re earning a pay check, put some of that money to work for you so one day you don’t have to work for money. The more you can afford to invest the better. And, similar to being disciplined about contributing to savings, be disciplined about building your investments. Set aside a certain amount each month that makes its way directly to the investment account.
  • How To Invest. Niece Two said to me, “I’m making a good salary for the first time ever and I have extra money each month. I want to invest it but … help?”

Right. So, step 1 is getting the money to invest. Niece Two has done that.

Step 2 is setting up an investment account. You could do this with your bank, and they would then put your money to work in mutual funds owned by the same bank. Generally speaking, not being a fan of mutual funds because of their high fees, I wouldn’t pursue this option. That said, close to 70% of investors do choose this option. Why? Not even Buddha knows. But the wise guess is that they trust the bank and they don’t know any better.

Best option: if you’re a beginning investor, set up an investment account with a financial institution that offers a Robo-Advisor.

Um, what?

Having seen its popularity grow in the last five years, the Robo-Advisor simply refers to a way to automate how your investments are chosen. Just like a flesh and blood financial advisor, the Robo-Advisor plugs in your relevant information (i.e., risk tolerance, goals, time horizon for investing) then chooses investments that best suit you. Typically, your money is placed in low fee Index Funds. And unlike a human financial advisor, you’ll pay a whole lot less in management fees.

To point you in the right direction, Canadians should check out the Robo-Advisor service at Bank of Montreal: https://www.bmo.com/smartfolio/?icid=bd-FEAT752IL4-AJBMO16.

For American residents, take a look at Charles Schwab: https://intelligent.schwab.com.

In an upcoming post, I’ll be talking til’ the cows come home about the benefits of investing with Robo Advisors. Until then, give a good pondering to this information and if you have questions, well, post on the BuddhaMoney Forum and bat around ideas with other BuddhaMoney enthusiasts, or send me a message and I’ll do my best to answer.


Enter Buddha

The second Noble Truth teaches that trishna (thirst or craving) is the cause of stress of suffering. Wanting to own a home, wanting to be financially secure is perfectly fine and good. The challenge is to avoid clinging to these wants such that wants become obsessive cravings and we forget what’s important: to be grateful for our life, for who is in our life, and for what we have.