As Gen Y we are often labelled as materialistic, having a sense of entitlement and pretty much anything else that you can associate with the term spoiled. But despite the cliche’s and false assumptions based on a few, Gen Y have clearly been underestimated when it comes to finances.
I mean 22% of Gen Y own at least 1 investment property and a survey by Bentley University found that 66% of us wanted to start our own business. That’s because we know that owning a business is the only way to break the shackles of being stuck in the working class.
But that’s not the only thing we’ve learnt. Here are some money mistakes that Baby Boomers made that Gen Y will avoid.
This can sound good in theory — add in a silver-tongued salesman and it’s no surprise that buying into a timeshare was popular for this generation. This industry exploded in sales during the 1980s.
According to the American Resort Development Association, the average timeshare cost was US $19,000 (AUD $25,000) with annual fees of US $660 (AUD $886). So, after 20 years of owning a timeshare based on these prices, it would have cost a total of $42,720 with each timeshare generally guaranteeing a week’s vacation.
But now, Gen Y have ever-so-convenient platforms like Trip Advisor and Airbnb at our fingertips. With the average timeshare working out to be $2,113 per year, Trip Advisor has: –
- New York – 4 Star – $1,916 for a week
- Honolulu – 3.5 Star – $1,719 for a week
- Rome – 4 Star – $1,903 for a week
And this isn’t looking at Airbnb who have prices in New York from $700 per week. The other option would also be investing the $25,000 @ 5% and receiving a $1,250 in interest per year. This alone would cover about 2/3 of the annual holiday expense.
I work with Baby Boomers on a daily basis and their loyalty to the big banks simply amazes me. Don’t get me wrong – loyalty is a great trait to have – just not when it’s to a multi-billion dollar company.
They will have their money locked away in a term deposit at 2% but refuse to move their money to an institute offering 3.2% because ‘the bank has looked after them’.
Really? Is this the same bank that lent you money for a mortgage at 17%, but when you lend them money it’s at 2%? No wonder the bank is ‘looking after you’.
What starts out as a conversation about an investment with strong rental returns usually finishes as a decision made by emotion. I guess it is all part of the Australian dream: own your home then buy a holiday home on the coast.
The challenge is that around 80% of the people I see either don’t rent it out at all, or it’s only a few times per year. Essentially, they have a $400,000 asset that is costing money and doing very little for their financial future.
The other issue with holiday homes are they are generally in tourist towns that rely on one industry and can offer little capital growth. Again with the pick-up in the sharing economy and online discount travel sites, the need for a holiday house will decrease.
No BS detector
The Australian Institute of Criminology found that people 65 and over were more likely to be scammed by computer fraud schemes. Contrast this with a survey by Elite Daily that revealed only 1% of millennials would trust a brand with a compelling advertisement.
I will concede that this level of distrust came from a result of the lessons passed down from previous generations. I hardly believe that a modern Jordan Belfort or ‘Wolf of Wall Street’ has much success selling penny stocks to Gen Y given lessons learned from other generations and, well, our ability to shut out most advertising.
Trusting shady advisors
The 2015 ‘Banking on the future’ report by KPMG found that 84% of Gen Y didn’t think they needed a financial advisor, with 65% of respondents saying that they would appreciate a financial coach.
This is reflective of the confident ‘learn by doing’ approach that Gen Y likes to take. They understand that knowledge is power and believe that if they educate themselves and find a coach they can achieve their goals without outsourcing the entire investing process to a complete stranger.
Again, it is previous generations who have helped shape this opinion of financial advisors. There are endless stories of Baby Boomers who trusted companies like Storm Financial only to lose their entire life savings.
These bad experiences are very common and have shaped the Gen Y attitude to the point of backing themselves knowing that if things failed, they are the ones responsible.
Narrow minded social economy
Whilst there is a long way to go in achieving wage parity for men and women, there is no denying that more women are working, and in high-paying jobs, no less. This allows for couples to build financial security with a double income while allowing single women to build their own financial sustainability.
Think of the power an additional salary grants when you are building wealth. It can reduce debt faster and build investments quicker. Even the movement of recognising that women retire with less super than men allows for a strategy to be put in place with enough time to make a financial difference.
Gen Y are the beneficiaries of strong social movement both past and present. With over 20% of Gen Y owning an investment property our generation will well and truly surpass that of the Baby Boomers
Gen Y have grown up with a vast array of research tools at their disposal. Within a matter of minutes, mortgages, loans, holidays and everyday household products can be compared online.
This generation can literally save tens of thousands of dollars by comparing and switching their home loan to a better rate. We should not underestimate this luxury that has not always been available to past generations.