Tuesday, August 31, 2021
The National - How to Learn from Money Mistakes made by Previous Generations
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Vijay Valecha, Special to The National August 31, 2021
No matter your age, you can always learn from previous generations' money mistakes to help you make more prudent financial decisions.
Generation Z typically does not save early to benefit from the power of compounding interest, millennials tend to take on too much credit card debt, Generation X delays saving for retirement and Baby Boomers are said to be highly risk-averse, experts say.
An overwhelming 85 per cent of Americans admitted to having made mistakes with their finances over the past 10 years, according to a 2020 survey by bank comparison website DepositAccounts.com. Respondents said their worst financial mistake over the past 10 years was racking up credit card debt (23 per cent), followed by not saving enough for retirement (16 per cent) and spending beyond their means (16 per cent).
All generations agreed that racking up credit card debt was a major financial mistake, the survey found. About 26 per cent of Baby Boomers said their biggest financial regret of the past decade was not saving enough for retirement, while millennials admitted they were spending beyond their means, the study revealed.
“The best money moves for someone who has just got their first job won’t be the same as for someone who is ready to buy their first home or for one who is approaching retirement.”
We spoke to people representing Generation Z, millennials, Generation X and Baby Boomers to find out what they think are each generations' biggest money mistakes, while financial experts weigh in with their advice.
Generation Z
Zuha Khan, 17, an Indian student in the UAE, believes one of the biggest financial mistakes committed by millennials is being careless with credit cards.
“A majority of millennials struggle with credit card debt that they’re unable to pay at the end of the month,” she says. “Not only do the unpaid balances accumulate, but the interest charges incurred also make their situation worse. I would like to ensure that I pay my credit card bills in full each month and build a good credit score.”
Some millennials tend to fall into the trap of living in the moment and do not plan for the future, Ms Khan says. Other mistakes millennials make are not investing their money, falling for get-rich-quick schemes and making risky investments, the teenager says.
“It is very important that people save for emergency funds. Most millennials ignore its importance and end up in debt or having to pull from other savings accounts in the event of economic downturn or job loss,” she says.
the financial experts say
Financial advisers say that Generation Z can be easily influenced by social media and some base their investment decisions on unqualified advice. Meme stocks and hashtags such as #FinTok on social media video platform TikTok are gaining in popularity among this generation.
Millennials
Generation X did not have a lot of savings, but instead were keen to invest in land and property for sentimental reasons, says Diana D’Souza, 40, a millennial who lives in Dubai.
“My parents always believed in living for the present day. They thought fixed deposits were the best way to save, whereas I believe the better way to save money is to live within one’s means,” Ms D’Souza says.
Generation X also did not understand the concept of having an emergency fund and saving for their children’s future education, she says.
“The life of Gen X was very simple while millennials are more ambitious and live in a competitive environment. So we have a bigger financial burden than our predecessors,” Ms D'Souza says.
What the financial experts say
EFG International's Mr Farjallah believes millennials ask for too much advice and support from Generation X.
Aman Moti, meanwhile, a wealth adviser at Holborn Assets, says many millennials do not have an emergency fund in place. “It is of paramount importance to have at least six months’ worth of expenses in your bank account to account for unforeseen expenses or sudden loss of income,” he says.
Millennials are less likely than older generations to review their insurance coverage annually to ensure their health and life insurance is adequate if they face an unexpected situation, Mr Moti says.
“While a new app or up-and-coming cryptocurrency might sound promising, they could open you up to more risk than you can comfortably tolerate. Before putting money in the next big thing, figure out how much risk you’re willing to take on.”
Generation X
David Bell, 43, a British sales specialist at Microsoft, says one of the biggest financial mistakes made by Baby Boomers was putting too much cash in the bank. It is safe, but all the time that it is in there, it is losing value, says Mr Bell, who believes it is better to invest wisely in a diversified portfolio.
Another common error noticed by Mr Bell is that Baby Boomers tend to invest 100 per cent of their savings in real estate. “Property can be a good investment as a portion of your portfolio, but don’t put all your money into real estate,” he says. “Property investment in mature markets such as the UK and US can bring reasonable returns, however, there is the risk that it can be outpaced by inflation. In addition, markets can be volatile, remember the price crashes in the 1990s and 2000s.”
Other financial mistakes include relying on government pensions for income and not accounting for where they will retire and how that will affect their income, he says.
“Many governments are no longer in a position to pay pensions that would resemble a living wage as the cost of living has risen faster than governments have raised pension pay-outs. Many Boomers find themselves having to supplement their incomes through part-time jobs or rely on younger family members.”
What the financial experts say
Generation X’s biggest mistake is worrying too much about providing a good financial future for their millennial and Generation Z kids, when in reality they are most likely to make more money faster than their parents, Mr Farjallah says.
“To a certain extent, Gen X were also slow in accepting environmental, social and governance-driven investments.”
Baby Boomers
The biggest mistake of the Silent Generation, those born from 1928 to 1945, was not to save for their children’s education, according to Arun Mamtani, a 63-year-old Baby Boomer.
“My granddaughter is only two years and I am already planning to secure her financial future until she is in her mid-20s,” says the chief financial officer of a UAE-based business conglomerate.
“I could not go for higher studies because my father never prioritised saving for my higher education. Their main priority was to invest in property to settle in after retirement. For our generation, children’s education is the first priority,” the Indian expat says.
The Silent Generation did not know the concept of an emergency fund and mostly took out loans against their provident funds (government-managed retirement savings scheme) in case of a fund crunch, he says.
What the financial experts say
Source:
The National