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Majority of Young Adults Care More About Financial Fitness Than Physical Fitness April 10, 2009 (SmartPros) Results of new Charles Schwab survey could signal a new era of financial responsibility among consumers. The majority (52 percent) of young adults between the ages of 23 and 28 consider “making better choices about managing money” the single most important issue for individual Americans to act on today, outweighing the need to strengthen family relationships (18 percent), protect the environment (11 percent) and improve personal nutrition and health (9 percent). Moreover, almost two-thirds of young adults (64 percent) say financial fitness is more important than physical fitness, and the majority (51 percent) believe that financial education in school, grades K-12, is more important than both physical education (31 percent) and sex education (18 percent) combined. These are among the key findings of the latest annual survey on the topic of families and money released today by Charles Schwab.
“This age group is clearly riveted by our weakened economy,” said Carrie Schwab-Pomerantz, president of Charles Schwab Foundation. “When we see people in their 20s prioritizing responsible money management over personal nutrition and health, it seems clear that the need for individual accountability has penetrated deeply into the culture. Without diminishing the importance of good health, these results are very encouraging and could signal a new era of financial responsibility among American consumers.”
But it’s not just individuals who are called on to take steps on their own. More than one in three young adults (36 percent) agree that the single most important action the Obama Administration could take to improve financial literacy in the United States would be to create incentives (or provide additional funding) for states that mandate personal finance in the standard high school curriculum. Another 36 percent in the aggregate believe the Administration should create economic incentives encouraging employers to provide holistic financial education for their employees, and fund a public awareness campaign for financial literacy to encourage parents to do a better job of teaching their kids money basics.
Young adults see their “financial physique” as “flabby”
Twenty-three- to twenty-eight-year-olds show some unexpectedly traditional views when it comes to personal finance. When asked to rank the relative importance of conflicting priorities, such as eliminating all debt vs. buying a new car, or saving as much money as possible vs. having as much fun as possible, they generally make the more responsible choice.
Yet despite this and their perception that financial fitness is more important than physical fitness, fewer than one in five (18 percent) consider their own financial physique to be “toned and fit.” More than three in four young adults describe their financial health as either “a little flabby” (55 percent) or “seriously out of shape” (27 percent).
Their behaviors may bear this out. On average, those surveyed carry more than $14,000 in debt (excluding home mortgages). Of those who use credit cards, only one-third (33 percent) pay off their entire balance every month, while the other two-thirds make payments less reliably. Nearly ten percent make payments only when they can.
With respect to this age group’s self-assessed financial health, the survey uncovered gender differences as well. Women were more likely than men to describe themselves as “financially flabby” (34 percent versus 20 percent), and also more likely to believe financial responsibility should be a national priority (55 percent versus 49 percent).
They don’t seem adequately prepared for life on their own
The largest percentage of survey respondents say they were most surprised to learn how much money it takes to live independently as they “began to live life on their own” (26 percent). Not surprisingly, only about half (51 percent) are financially independent from their parents. One in four (26 percent) still live with their parents; of those, 28 percent are unemployed while another 26 percent made the choice to live with their parents in order to save money.
Young adults rely on their parents in other ways as well. The majority (56 percent) attribute their knowledge of money management basics to their parents, with significant numbers continuing to turn to their parents for ongoing financial advice (43 percent). However, many in this age group admit they don’t feel adequately prepared to make good financial choices when it comes to using debt wisely (28 percent), saving for the future (40 percent) or investing their money (43 percent). And when asked which aspects of personal finance they wish they had learned more about before entering the workforce, living within a budget (45 percent), and the importance of saving (42 percent) rise to the top of the list.
Financial fitness in the workplace
For many young adults, entering the workforce provides the first real opportunity to apply the financial lessons they’ve learned, as well as to fill in their gaps in knowledge, and employers have the opportunity to help. Two-thirds of survey respondents (66 percent) say they would like to see their employers offer ongoing education and guidance on a range of financial topics beyond those related to employee benefits such as the company-sponsored retirement plan and health insurance choices, but only 25 percent of employers actually do so.
In fact, when it comes to financial education and guidance offered by employers, there is a sizeable gap between what younger workers want and what their employers actually offer, despite the fact that almost one in three young workers (31 percent) say they are not very familiar or at all familiar with their employers’ offering of financial benefit plans. The following list ranks in order of importance the education and guidance these younger workers would like vs. whether their employers offer it:
“Corporate employers are in a unique position to promote social change, but the potential benefits go beyond fulfilling any sense of social responsibility,” said Schwab-Pomerantz. “Basic financial education helps people understand how to avoid financial potholes, which can cause tremendous personal anxiety and stress that interfere with productivity at work. From the family to schools to the workplace, each of our cultural institutions can play a greater role in helping today’s youth learn how to make sound financial decisions that will help them throughout their lives.” Five Priorities for Financial Fitness
While many young adults believe they have the ability to improve their financial health through more education and research on their own, many others express interest in seeing a step-by-step plan. The following are some immediate actions that young people can take to get on the right track.
1. If you don’t have a written budget, create one and stick to it. If you need to cut back on expenses, start with all those “nice to-do’s” such as eating out, travel and entertainment. Better to use that extra money to build up a stash of cash (an emergency fund).
2. Make sure you’re building up your emergency fund to cover a minimum of three months of essential expenses—and keep this money easily accessible, like in an interest-bearing checking account or saving account. Depending on your job security and your other assets, you may want to have up to twelve months of expenses in reserve.
3. Stay on top of credit card debt, paying it off every month if possible. If you’re carrying a balance, think about ways to reduce your interest rate. For example, can you negotiate with your credit card company – or transfer your balance to a card with a lower rate?
4. Start saving for retirement. If you have a company-sponsored 401(k) or other retirement plan available to you, at least contribute up to the amount that will allow you to take full advantage of any employer match. Don’t leave this “free” money on the table. Ideally, if you can start putting aside 10 percent of your yearly salary in your 20s, and keep saving at this rate throughout your working life, you should be in great shape when you reach retirement age. Remember, it’s not only how much you have to invest, but also how long you have to invest that counts. Right now you have time on your side.
5. Protect yourself — and your finances — with adequate health insurance. Being young and healthy is no guarantee against an accident or unexpected illness, either of which could cost many thousands of dollars. Don’t even think about neglecting this step!
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