Young people are killing their chances of building wealth. Their ignorance of how credit cards work is mind-blowing. According to a recent survey:
- 6% believe that missing a card payment would “improve” their credit rating. WTF!!!!
- 17% said missing a card payment would have no effect on their score.
- 48% carry card balances on which they pay hefty interest charges month-to-month.
- 45% have no clue what interest rate they are paying.
- 36% have maxed out cards.
Source: LendEDU Survey
On the opposite end of the spectrum, many millennials believe “credit cards” could ruin their lives and find them “scary.”
This attitude is equally destructive. Not using a credit card makes it impossible to establish a credit history, which is essential for the purchase of a home or automobile.
Ignorance leads many to miss an opportunity of a lifetime: Earning a 20% guaranteed return on their money. How do you do this? Crypto currencies or triple leveraged oil ETFs? No, just pay off your credit card that charges a 20% interest rate on your balance!
Due to the epic failure of our public school system and parents’ inability to educate their children, young people often enter the workforce financially illiterate. They do not understand the basic concepts of compound interest. Paying off a loan that charges you 20% is the same as earning 20%.
I would dare to say many young people don’t even know what an interest rate is.
How will they ever deal with the over $1,000,000,000,000 student debt that currently shackles them? This bleeds into another important aspect of a young person’s financial life: Investing.
The above chart displays the incredible opportunity young people are wasting. Many have a portfolio that is suited for a retired 80-year-old couple, not someone with their whole life ahead of them.
Our CEO, Josh Brown, said it best in his post, Start Now:
“It just shouldn’t look this way. If you’re a millennial holding 70% of your investable assets in cash – and you’re not on the verge of buying a home or paying off the entirety of your student debt – you are squandering the most precious resource known to investorkind: Time.”
“When it comes to compounding, time is more valuable than any analysis, research, investing tools or trading service. You can be the most boring investor on earth and, with enough time spread out before you, outperform virtually anyone.”
The deadly combination of high debt and a lack of participation in the global stock markets is the ultimate wealth killer. This a prime example of reverse compound interest in its most lethal form.
We are doing our best to combat this epidemic of financial illiteracy. Last week we taught 6th and 7th graders how to let compound interest work for them instead of paying it to somebody else (more on this in another post). We would love to help your local school with this very important issue. Contact us and find out more.
Don’t let your children turn their financial dreams into nightmares. Give them a fighting chance. Forward this on to a young person. This is a serious problem. We all have to do our part to help solve a mess we all helped create.
We owe this to a generation that is quickly developing a reputation for killing their finances.