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Key Tips To Help Supercharge Your Finances

Key Tips To Help Supercharge Your Finances

Millennials: Are You Financially Literate?  

Millennials receive a lot of coverage in the media, from their social media habits to different work preferences more in fact, than baby boomers, and the often burdensome debt levels that follow many of them after college graduation. The number of articles written about personal finances, student debt, and the implications of student debt levels on career and life planning continue to multiply on a daily basis. On top of debt levels, millennials are earning 20% less than their parents (Boomers) did at similar stages in their professional careers. That said, the focus of this article is not to revisit the issues of college affordability, student debt, or the choices made by individuals concerning their credit cards. Rather, the main point of this piece is to point out technology, methods, and the correct mindset to help millennials tackle debt issues, and improve financial literacy. What is financial literacy, why is it important to millennials, and what can be done to improve the financial literacy of the millennial generation? Rather than sitting around, and simply reporting on the gaps in financial literacy, let’s review some of the ways that millennials can focus on improving financial literacy, and why it is so important. There is certainly work involved with learning more about financial literacy because everyone is unique, but there are resources and publications that are available free of charge to help you on your financial journey.

What is financial literacy?

Financial literacy might sound like a vague term that only belongs in a classroom or an academic discussion, but it has real world implications. Put simply, much like a person has to be literate to understand news articles, reports, and books, millennials must be financially literate, and aware of financial terminology, in order to make the best decisions for them. This is an area that influences both professional decisions, and the choices made regarding home buying and other major financial decisions. While the list of financial articles and topics, particularly pertaining to millennials, are extensive, this piece focuses on a handful of areas and topics that can help millennials get a better handle on financial literacy. As millennials continue to increase, both in terms of population at large and as a percentage of the workforce, the effects of financial literacy, or a lack thereof, are rapidly becoming a serious issue. In essence, financial literacy, especially for millennials, focuses on the following key topic – knowing about your finances and financial terminology in order to help you make better financial decisions. That said, let’s take a quick look at some of the more problematic hurdles for millennials seeking to better understand their finances.

Debt management

            Debt, whether it is credit card debt or debt associated with student loans, is a growing issue for the millennial generation. With multiple reports stating that college graduates are leaving school with over $30,000 in debt, on average, this is a major obstacle for millennials improving their financial literacy. Debt is a challenge, and can be an obstacle to achieving financial flexibility. Regardless of how much debt exists, there are different ways that you can pay down debt effectively.

  1. Snowball – starting with the smaller debts first and working up to the larger debt amounts lets you 1) get rid of debts, and 2) give you a psychological boost to help keep you motivated.
  2. Highest interest – interest payments do nothing, I repeat, nothing to reduce the total dollar amounts that you owe back. Paying off the debts with the highest interest rates will save you money, and help you lower your debt burden.
  3. Highest dollar amount – tackling the highest dollar debt will obviously knock down the total dollars you owe back, but it will also help improve your credit utilization ratio.

Your credit utilization ratio is how much credit you have extended (debt), divided by the total credit you have access to use. For example, if your credit card has a limit of $5,000 and you have $500 on it, your utilization ratio is 10%.

Credit cards  

            Credit cards are everywhere, especially for millennials, and the rise of mobile apps like Uber, Netflix, and the ability to purchase from Amazon directly on your phone encourage people to spend more, and more frequently, on their credit cards. It is important to always keep in mind, however, that credit cards are debt that must be paid back over time, and should be treated with respect.  Doing your homework is always important, but it is arguably even more important for financial issues than for social or professional matters. Credit is a powerful tool, but it has to wielded with discretion in order to maximize the benefits that you can generate. As long as that fact is understood, and to acknowledge the reality that credit card offers will keep coming no matter what, here is a short list that all millennials should evaluate when selecting credit cards:

  1. What is the APR? The annual percentage rate represents the interest rates that must be paid on the debt on your credit cards, and this is different from introductory rates, which are often 0% for the first 6 months of credit ownership.
  2. Fees – what are the fees associated with your credit cards, and are there additional fees if you only make minimum payments?
  3. Rewards – rewards and benefits can be tempting to use, and can come in the form of cash rewards, points, or travel perks. It can be very difficult to gather enough points and rewards to actually pay for travel or other rewards.

Use the tools

            One of the most frequent criticisms of the millennial generation is that, both in the workplace and in social settings, too much time is spent on mobile devices using social applications. Including Facebook, Twitter, Pinterest, and Snapchat, the sheer number of mobile tools can be overwhelming, and leads to people wasting time that would be better spent elsewhere. The same technology that can increase debt can also be used to help cut down debt levels. Mint, iReconcile, and Mvelopes are just a small sampling of the mobile tools and applications that are available, and can be used either on your phone, tablet, or desktop computer. Debt is a challenge, and can limit your opportunities, but it is also a tool and option that can provide millennials with the financial flexibility they so desire. The tools are out there, the issues are real and growing, and the building blocks of finance include credit, technology, and how to best manage these financial issues. All that is left is to get to work!

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Dr. Sean Stein Smith

Dr. Sean Stein Smith, DBA, CPA, CMA, CGMA, is an Assistant Professor at Rutgers School of Business in Camden, New Jersey. Sean serves on the AICPA National Commission on Financial Literacy. He is a member of the NJCPA Content Advisory Board, Student Programs & Scholarship Committee, Young CPA Council, Nonprofit Interest Group, and Accounting & Auditing Standards Interest Group. He can be reached at drseansteinsmith@gmail.com.