Money Mistakes By Decade
Hello $wanigans! As always, thanks for stopping by The Green Swan. I’ve been a big fan of podcasts in the last year or so and follow a number of good ones. Just a few weeks ago I was listening to one from the Wall Street Journal titled Biggest Money Mistakes We Make, By Decades. This podcast was actually just a discussion about an article that was recently published on the WSJ online which does go into a little more detail than the podcast if you were interested in checking it out.
This podcast and article are actually very timely as I was in the process of writing a blog post anyway on my biggest money mistakes and regrets. So I thought it would be interesting to share with everyone an overview of the WSJ findings along with my commentary and then also share a follow up post on Monday detailing my money mistakes and regrets. As always, I hope you jump in and share your thoughts and money mistakes (if you’ve ever made any 😉 ) in the comments below.
So without further ado, let’s talk about the biggest money mistakes folks make in each decade of life!
Folks in their 20s today are largely dominated by the millennial generation. For the record, I too am a millennial even though I’ve now eclipsed into the 30s category as Lucy kindly pointed out recently.
What the WSJ found in this life stage is that folks are generally playing it too safe. After being scarred by 9/11 in their early years and the 2008 financial crisis when in high school or college, people in this age group are timid with making risky bets with their investments. Investment portfolios have been constructed so safe by this cohort that they align more with the suggested portfolio of someone who is already retired!
This is in stark contrast with the general recommendation that this is the age to actually take more risk with the portfolio given the long investment time horizon before retiring. Shame on folks in their 20s! But if you’ve been an active reader of The Green Swan in the last few months, you knew this already given my post on millennials investing…
Another finding, which is scary, is that this cohort is not very financial literate as compared to the past. Yikes! The author wasn’t holding any punches! But this too we already knew since I let everyone know that financial literacy is my cash cow.
So in conclusion, folks in their 20s aren’t financially literate and have a hard time making independent decisions because they fear mistakes. This, therefore, has led to apprehension with retirement saving.
Ah the 30s! Home to yours truly as well as my wife. While she is 7 months younger than me and loves to remind me of this fact, at least she is now in her 30s as well and we can commiserate together!
This generation has the feeling of becoming “real” adults…uh thank you very much…but with kids in the picture more as well as investing in real estate and buying a home, they become cash strapped. This is in spite of earning more at work.
This cohort lives in the fantasy of their parents’ lifestyle back when they were just leaving their household. Expecting that quality of life for themselves, even though they are a couple decades behind their parents at that stage, they are looking for the large home and fancy vacations for themselves. As a result, they miss out on saving enough and instead rack-up a lot of debt.
Are you over the hill? If you are in your 40s, you are part of the “sandwich” generation which has become more prevalent than first thought. For those unaware of this concept like myself prior to listening to the podcast, this means folks in their 40s are sandwiched with the costs associate with kids (i.e. education and other costs) as well as older parents (i.e. medical care).
The mistake made for these folks is not having a plan for retirement and, more stunningly, taking withdrawals from retirement accounts early to cover “sandwich” costs.
Another common mistake is mishandling of mortgage debt, buying too much house and becoming “house poor” since they are caught up with the materialistic suburban lifestyle.
Side note here from the Swan…get over the lifestyle people, please. I’m tired of hearing of this bullshit excuse for not saving. Wake up and smell the coffee already…Do some soul searching, find out what you want and need in this life and develop a plan. Materialism is overrated. If you haven’t already, you should check out my recent post on my move toward a more minimalistic lifestyle.
Into your 50s? This group’s biggest mistake is waking up and realizing they don’t have enough to get through the rest of their life and having difficulty catching up. To me, this cohort’s mistakes are maybe the biggest because they don’t have much time left before traditional retirement age. They can find themselves in a big hole without a rope ladder to climb their way out.
This mistake is in part due to the demographic changes where folks are living longer these days than in generations past, meaning they need more invested to get them through.
The solution this group sometimes tries to reach for, which can just ultimately end up backfiring, is making more risky investment decisions to catch up quickly.
This group is also defined by the getting the entrepreneurial bug which has become more common than historically. The idea is that the business will be able to bring in more cash and last through retirement.
Although I’m in my 30s, I find myself relating to this in some sense. I too am on the doorstep of retirement (really early retirement obviously) and recently invested a good chunk of change into a small business venture with my brothers which I’ve referred to in the past as [The Green Condor] and you can find my latest updated on [clearing growth hurdles]. Part of the reason I made this investment is the anticipated higher returns that investing in small businesses can offer. Granted, for me, if it backfires I still have plenty of time to earn more money and still retire early.
One of the suggestions from the podcast was to delay withdrawals from social security if you feel cash crunched at this stage in your life. Waiting to withdraw until you reach age 70 rather than 62 can result in benefits that are 76% higher.
The 60s and Beyond
The primary issue impacting this cohort is not beginning to delegate responsibilities related to savings and other realms of finance. Per the article, peak financial decision making age is 53 and it declines 1% per year after that. Therefore, it is important to begin delegating these decisions earlier rather than later.
This issue wasn’t necessarily on my radar, although obviously I still have a couple decades to worry about this. But it definitely is something to think about when entering the 50s.
I thought this podcast and related article were very interesting. As I reflect on the various issues though, I find one thing that permeated throughout. And that’s the thought that if you get it right early, in your 20s or early 30s, it can help alleviate most all the other problems folks experience decade after decade.
If you get it right in your 20s, invest early, develop good personal finance habits and take prudent risks, it’ll provide you the platform to manage finances the rest of your life and maintain a solid investment portfolio. It’ll make the 30s easier when you start having kids and buy a home, it’ll make the 40s easier when handling education costs for your kids and will help keep you grounded when tempted by our materialistic culture, you’ll have no problem in your 50s as your nest egg has had plenty of time to compound already, and you’ll be setup in your 60s to begin retirement comfortably.
Wow, huh? If your personal finances aren’t in order, what better motivation to get it right early and fix the problem ASAP? It’s always better to learn from someone else’s mistakes and avoid them for yourself!
Where do you fit in to the above categorization and have you made any of these common mistakes? I know I can relate…but more to come on that in the follow-up post.
Thanks for taking a look!
The Green Swan