Ignoring the value of credit
Africa Studio/shutterstock There are costly money mistakes we all make. For Millennials, who were born into a recession and watched their parents struggle with credit, one of those mistakes is avoiding credit. A 2016 Bankrate survey found that less than one-third of Millennials have a credit card account, compared to over half of consumers above age 30. They tend to believe debit or cash transactions are a safer alternative, but they may not be the best bet in the long term.
“Ignoring credit entirely will produce a limited credit profile,” warns Financial Advisor Michael Zaino. “When you do need credit for larger purchases such as a home or a car, lenders will have no way to evaluate your risk. You’ll have more trouble getting a loan and will likely pay higher interest for the unknown risk that you present.”
Zaino, founder of TZG Financial in Charlotte, North Carolina, practices what he preaches. “The day my daughter turned 18, I got her a credit card and taught her how to responsibly use it. I also made sure she was listed on the loan I took out for her car so that her credit would build while she was in college, giving her a head start on life.” Here are 11 easy ways to improve your credit score today.
Aversion to risk
On the positive side, Millennials do tend to invest—but, according to a survey from AMG Funds, stocks make up only 30 percent of the average Millennial’s portfolio. That’s almost one-third below the equity holdings of the average older investor.
Zaino, who counsels the Millennial children and grandchildren of his primary client base, says, “Younger investors who can’t handle the risk associated with stocks are missing out on significant long-term growth through higher returns and the positive effects of compounding interest. In addition, younger investors have more time to gain back any losses caused by market corrections or recessions. Being overtly risk-averse and not taking advantage of the upside potential is not the way to go.”