5 Tips for Understanding Finance as a Millennial

5 Tips for Understanding Finance as a Millennial

Millennials are emerging as the most significant generation in terms of numbers, surpassing even the baby boomers. However, when it comes to financial literacy, there seems to be a gap. A recent report by the National Endowment for Financial Education revealed that only 9% of Americans aged 18-24 could answer five or more questions about basic economics correctly. Furthermore, a 2019 study by Bank of America revealed that 60% of millennials feel financially stressed. These facts underline the importance of financial education for millennials, so here are five tips for understanding finance as a millennial.

1. Start by Setting Financial Goals

Before beginning one’s financial journey, it’s essential to set realistic goals. Create objectives in the short, medium and long term, both in the short-term and long-term. Break these larger targets down into smaller steps to create tangible targets and track progress. This process should help millennials establish goals, such as clearing debt, accruing savings, buying a home, or investing in stocks.

2. Get Familiar with the Terminology

Finance has its jargon, which may be confusing to novices. One can improve their understanding of financial terms by reading financial blogs, research reports, & books. It is also worthwhile to explore digital financial apps that explain financial concepts using simple language. A financial advisor can also be beneficial as they can explain and answer any questions regarding the complex terms in finance.

3. Understand Investment Options

Investing is essential for millennials to build wealth over the long term. However, with so many options available in today’s market, understanding where to invest can be confusing. Before investing in a company, consider researching and analyzing its history and financial reports to make an informed decision. Choosing between a Roth and traditional IRA matters as both have substantial tax implications, and depending on the individual’s situation, one option may be better than the other.

4. Pay Down Debt

Paying off debt is an essential step towards financial stability. While no one wants to be in debt, many millennials have student loan debt from their college educations. One effective method of reducing debt is paying more than minimum payment requirements each month. Tackling debt early helps millennials to avoid high-interest payments, ultimately saving money over time.

5. Create a Budget and Stick to It

Creating a budget is the first step towards financial freedom. Millennials should consider developing a budget that takes into account all their weekly, monthly, and yearly expenditures. Without a budget, it can be challenging to keep track of where the money is going, leading to financial stress and anxiety. It is, therefore, crucial to develop a budget and stick to it, reducing expenses wherever possible.

Conclusion

While navigating finance can seem challenging, being financially literate is critical for millennials to establish financial independence and security. Setting achievable goals, understanding financial language, investing wisely, paying down debt, and managing personal budgets are all steps that can help a millennial stave off financial stress. By taking these steps, millennials will position themselves for long-term financial success.