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5 Reasons Millennials Aren’t Buying Homeownership

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Couple Dreaming of House

Homeownership has been a cornerstone of the American dream. With Average new home sales now topping $356,200, the dream of homeownership has become daunting for Millennials. The idea of becoming a first-time homeowner seems to be more of an illusion than a pillar of the American experience.  

Millennials are the largest generation in the US workforce and are shifting the tide on the timing of traditional life-stage purchases. It is not that they don’t want to own their own home, but the weight of ballooning student loan debt, consumer debt and urbanization has shifted the Millennial outlook away from traditional homeownership.

Many Millennials don’t seem to think buying a house is a necessity, as once advertised by previous generations. Whether based in denial or fact, housing trends among Millennials are changing the norm. Here are five reasons Millennials aren’t subscribing to the traditional mantra of first-time homeownership:

1) New Housing Isn’t For Us

Despite the headlines about the housing market surging, people in their twenties and thirties don’t feel they can participate in the boom. There is a disconnect between what we read in the news and what we are experiencing in reality.  Surveys conducted by the National Home Owners Association show that less than 20% of the new home construction over the past several years was dedicated to “entry-level” properties. This is actually down from the pre-recession levels of over 30%. From a holistic market perspective, a 10% decline in new home sales is truly a significant number. In short, houses are literally not being built for the Millennial market.

Why is the housing market doing so well, you ask? It’s because of our parents. Developers have shifted their focus to building larger dwelling houses that cater directly to the established and affluent baby boomers. Until there is a shift back to building affordable first-time homes, this trend is likely to continue.

2) Down Payments Are The Worst

Being part of Generation Y definitely has its benefits, like being the most tech savvy people around. However, we also have major burdens, one of which is our level of debt. Student loan debt and consumer debt restrict our ability to save for the recommended 20% down payment for homeownership. The average sales price for new homes sold in March 2016 was $356,200. With some quick math, you can see the average Millennial needs to accumulate $71,240 for a down payment for the average house. Best of luck with that.

“Young workers face a lot of hurdles on the way to homeownership, including saving for a down payment in the first place and deciding where and when to settle down.” said Zillow’s chief economist, Svenja Gudell.

With most Millennials tending to live in large urban areas, where the housing prices tend to be higher than the national average, the practicality of buying a house is quickly dismissed. Some Millennials are taking a non-traditional approach and living at home longer. According to Forbes, for the first time in over 130 years, more Millennials are living with their parents than with significant others. For the few Millennials who are buying houses, their time at home servers as a strategic move to allow them to save enough cash to afford their down payment.

3) We Are Delaying “The Family”

With major cultural shifts occurring, Millennials don’t feel the need to be strapped down by purchasing a first-time home. Not only are Millennials pushing “adulating” to later in life, we honestly don’t quite see the need for the mortgage and the giant house.  Thanks to Personal Finance advocates like Richard Kiyosaki, author of Rich Dad Poor Dad, a home mortgage is now viewed as a “liability” to a family and not quite the “asset” it once was considered.

In today’s fluid economy, Millennials value flexibility and mobility over security and stability. According to data from Pew Research, the median age of marriage is at an all-time high of 29 years old for men and 27 years old for women. This has delayed the formation young families. Therefore, the pressure to find a house and settle down to long-term employment isn’t quite what it used to be. We are thankful for that, because honestly, we can’t afford it.

4) Rental Options Are Abundant

While Millennials are not warming up to the new housing market, they are doing quite well in subscribing to the renter’s market. Even though rents are rising, urban-based Millennials are left with the option of finding an “affordable” place to rent. In fact, the cost of renting is rising faster than inflation.  This leaves Millennials paying a larger percentage of their take home income on housing.

While rents are still high, they are not high enough to incentivize saving for a home mortgage down payment and often impede the progress towards saving for that goal. Additionally, after watching our parents struggle during the time following the economic collapse of 2008, many believe homeownership is not worth the risk. And if renting an apartment doesn’t work, there is always mom and dad’s house (see Reason 2).

5) It’s The Economy Stupid

As with most generations, our outlook and consumption patterns are often driven by the economic conditions of the economy in which we came of age. Many Millennials were graduating from college or newly minted in the job market during the economic collapse of 2008. Over the last decade, salaries have been stagnant and economic growth anemic. Signs of recovery have been slow. Even the President of the Federal Reserve Bank of New York is concerned about the long-term economic outlook. As a result of this slow growth, our generation has been patient about realizing the American dream of homeownership. Instead the focus has been on debt reduction, either student loans or credit card debt. Until the economy fully turns around, Millennials out of necessity will be patient – waiting for their turn.

While there are numerous reasons Millennials are not buying houses, as a generation we still wish to one day own our own home. With rising housing prices and mounting debt, we will be a generation known for our patience before taking the plunge into homeownership. And for most of us, that is just fine.

Get To Zero – Become A Cash Saving Hero

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Balance - Saving v. Debt

Should I save cash or pay off debt? When we first ask this question it can be difficult to answer. Whether you are paying off student loans, credit card debt, or a car note – this question seems to always linger. In part, it is not a difficult question to answer. Rather the difficulty lies in taking the time to assess your financial state, analyzing the totality of your financial health. Inevitably, if you are asking this ‘save’ vs. ‘pay off’ question, you have a debt to eliminate. Pay off your debt first, sort of.

Saving cash while you are in debt distorts the view of your financial security. It shifts the focus from the negative, how much you are in debt, to the positive, how much cash you can accumulate. While concentrating on the latter brings us more joy, it clouds the reality of our predicament. If you are “$X” in debt [plug in your debt figure], then focusing on the negative is a must. No matter the sum, it always takes time and a concerted effort to pay off debt. However, if you don’t concentrate on eliminating debt first you are only prolonging the reality of your current financial health.

This is not to say that you should have a lack of savings. Before you begin your debt repayment you should save one month of living expenses – including rent, food, and transportation – in order to provide yourself a reasonable cushion for unforeseen expenses and emergencies. Some personal finance professionals, such as Dave Ramsey, argue that you should first have a $1,000 emergency fund prior to paying down debt. Unfortunately, in today’s world, $1,000 can evaporate quickly. I argue that you should have one month of living expenses to provide a more realistic savings cushion. Furthermore, it will leave you invigorated to aggressively tackle your debt.

Once your emergency fund is established, your total focus should shift to eliminating debt. Postpone the “finer things” in life and be conscious of your spending. Create a conscious spending plan as recommended by Ramit Sethi, author of I Will Teach You To Be Rich. Ramit argues that you should spend your money where you see fit. Spend on the things you love and cut mercilessly everywhere else. For you, this means keeping the one or two things that will make you happy while you are in the throes of debt elimination (For me, I can’t live without my coffee).

In summary, you should save cash, but only for the short term. Once you have built up your one-month cushion, it is time to shift your focus to paying off all debts. Once your debt is paid off, it will be time to start building some serious money stacks (How To Save 88K by 30)!

How To Buy Happiness

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How to Buy Happiness Photo

Most people are under pressure to earn more money. They have fallen prey to the false conventional wisdom that the more money you make the happier you are. In actuality, recent studies have shown that in the United States, earning more than $75,000 a year has little effect on daily happiness.

Once your basic needs are accounted for, it becomes not so much how much you make, but how you spend your money. As it turns out, buying experiences, or experiential purchases, instead of material purchases can dramatically increase your happiness.

For most people, buying nice “things” is the goal when one starts earning more money. There is a natural tendency to want to buy a larger house, a nicer car, and finer clothing.  This behavior is driven by our culture of consumerism. In fact, we are also driven by our physiological response to purchasing large ticket items. We experience a rush of dopamine building up to the purchase of an expensive item. Think of the first time you bought a car – what a rush!

But this purchasing cycle presents a problem. The problem with purchasing material goods is that the novelty of the purchase quickly subsides. “New things are exciting at first but then we adapt to them.” says Thomas Gilovich, a psychology professor at Cornell University.

Research suggests that if you buy experiential and leisure purchases – trips, sporting events, movies – over material goods, you will be more satisfied with your life. To get the biggest bang for your buck, the experience should link to your identity, be memorable, be unique, and foster a social connection.

Experiences give us a way to tell the world who we are. They provide texture to our life. In fact, people are much more likely to want to give up a material purchase than the memory of an experience. Our attachment to our memories is rooted in the fact that the development of who we are is directly related to our life experiences.

Moreover, experiences allow us to tap into the pleasure of the experience for years to come. Unlike buying a Rolex watch or Chanel handbag, the experience of a trip to Mexico with a group of friends can provide a source of pleasure to draw from. Not only will the vacation be an enjoyable experience, but also several years from the trip, you can reflect back on the vacation and bask in its memory.

Furthermore, that memory will get better over time. The value of experiences appreciates over time due to their abstract nature. According to sociologist Fred Davis, nostalgia “reassures us of past happiness and accomplishment”.

Not only do experiences last longer than material items, they are terrific for building social connections. Given the social aspect of experiential purchases, such as going to a sporting event, you will most likely develop friendships along the way, thus increasing your sociability. As social creatures, this sense of camaraderie is a critical part of building a solid social fabric and increases our well-being.

How you spend your money can make all the difference in how “rich” and “happy” we feel. Put this knowledge to use and build an experience rich life. Instead of accumulating material items, remember that purchasing your next trip or adventure may be the better use of money. Draw upon your memories, and they will serve as lifelong companions. By increasing your sociability you will have more chances to participate in experiences to come. Now get out there and enjoy the world

7 Old School Rules To Build New School Wealth

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Scott Disc

Oftentimes, major purchases can bring to light flaws in our financial stability. Whether it is coming up with a down payment for a house, paying for a car with cash, or saving for a family vacation, spending large sums of money can leave us utterly petrified or feeling quite content. If you find yourself among the petrified, finding the humility to recognize the consistency of man’s financial problems leaves you open for the timeless advice provided by the parables in The Richest Man In Babylon. 

With all of the chaos and clutter that fills our modern life, the same fears, anxieties and worries about day-to-day finances were felt thousands of years ago during the time of the Babylonian Empire. Even then, the process to gaining financial security could be distilled down to seven manageable rules. Following these rules can change your life.

Rule 1: Start Saving

Well, this sounds simple enough – just save. However, for the vast majority of people in their 20s and 30s, savings can prove quite elusive.  Money deposits in the bank account and, for a plethora of reasons, goes right back out. Part of the problem may lie with your approach to savings. Your employer pays you and then you pay for rent, food and transportation. But when was the last time you paid yourself?

That’s right. If you want to start increasing your savings account, it’s time to start paying yourself. For every paycheck you receive, side job you complete, or “help” money your parents are sending – save 10%.

Not only should you start paying yourself, you should start paying yourself first. Make this your ritual and engrain the habit into your daily financial choices. After a while, it will become second nature and your bank account will start to grow, just as it should.

Rule 2: Control Your Expenses

It is easy to confuse the necessary with the desired. Controlling your expenses is, perhaps, the easiest way to pay yourself 10% of all that you earn. The most difficult part of culling your expenses is realizing that your salary and lifestyle expectations may not be as correlated as you once thought. Additionally, as your salary increases so does your appetite for consumption.

“What each of us calls our necessary expenses will always grow equal to our income unless we protest to the contrary.” 

Curb your “necessary” expenses. You might need to sell your car to eradicate your monthly car payment. You might need to move to a different apartment because your rent is eating up more than 25% of your take home pay. You might need to start cooking at home because dining out is consuming your cash.

As with most changes, the difficult part is in the pain of switching. Once you begin scaling back your expenses, the things you thought you needed don’t seem to be quite that necessary. Watching your savings account continually increase, for some reason, helps ease the pain.

 Rule 3: Multiply Your Gold

The fun part about starting to build your savings is that you can begin putting your money to work. You work hard enough. Give your savings full-time employment.

“A Man’s wealth is not measured in the coins he carries in his purse; it is in the income he buildeth, the golden stream that continually floweth into his purse and keepth it always bulging.”

If investing is new to you, don’t worry. The fact that you are investing is what is key. Find yourself a profitable investment and ensure that it keeps putting more money into your purse.

Rule 4: Protect Your Investments

For those new or experienced to investing, it is paramount to protect your principal. By its very nature, investment has a degree of risk. Part of your strategy for investing should be risk management.

Avoid the Siren’s song of quick and easy returns. Be diligent and patient in your investments. Seek counsel from an investment professional or advice from seasoned investors.

Rule 5: Make Your House An Investment

Owning your own home is part of the American Dream.  However, for people in their 20s and 30s this dream is proving to be just that – a dream.  Once you have paid off all of your debt, you should start saving for a house. Create a plan to save for your down payment.

Keep in mind what you have learned by controlling your expenses and be reasonable about how much home you are actually buying.  Purchasing a condo can be ideal for a first time real estate purchaser (they are typically more affordable than houses). While you typically can’t afford the “perfect” first house, if you take the time and capital to invest in your house you can accumulate equity. When it comes time to move you now have the option to keep the condo or house and rent it out once you own it. This increases your earnings.

Rule 6: Ensure a Future Income

Retirement – that seems like a long ways off. Hopefully for you it won’t be. If you start saving for your retirement when you are young, you can provide yourself with the necessary nest egg to actually enjoy it.

Automating your savings throughout your career is the easiest way to accumulate retirement savings quickly and effortlessly. Out of site, out of mind, truly works when saving for retirement.

Whether you are contributing to an IRA or 401(k), try maxing our your contribution. Get used to not having too much cash and tuck it away for another day.

Rule 7: Increase Your Future Earnings

Invest in yourself. This doesn’t mean you need to go out and get an advanced degree. It does, however, mean that you should take the time to learn your trade and profession outside of your daily routine.

Read articles, attend seminars, and study topics that increase your knowledge and earnings potential – put that knowledge to use in the workplace and this will ultimately increase your earning potential. Build what Cal Newport, author of So Good They Can’t Ignore You, calls “career capital” and increase your earnings over time.

While everyone’s financial situation is unique, the laws of personal finance are universal. Focus on the wisdom given to us from previous generations and pass it along as you change your financial habits and build wealth.

Automate Your Future – How To Save 88K By Age 30

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There is a growing tendency among Millennials to delay “real life” during our 20s. The conventional wisdom exacerbates the notion that this period of life is for self-exploration, living on the edge and finding oneself. The importance of developing financial security – please – that is for old people to worry about. Since our parents grew up in one of the richest generations in US history, who can blame us for this mindset? If our parent’s lives were better than their parents, then logic only dictates we will be financially better off than our parents. Therefore, it’s asserted, let’s enjoy our 20s because everything will work out in the end, and we won’t get these years back. Yes, that’s true, you won’t get them back. While we can’t reclaim our youth, it’s also true you won’t get back the 88K you stole from yourself by not being financial prudent during your 20s.

As Millennials, we have been raised to question everything. So now, let me pose some questions to you: What if your 20s is actually the most important period in your life to begin saving, stashing money away for retirement and paying off debt? What if the laissez-faire attitude towards personal finance is not actually what it seems to be? What if by being financially savvy in your 20s you can actually set the bedrock for a stable future that allows you to, indeed, carry the generational torch and live beyond your parent’s financial health?

Your 20s, folks, is exactly just that.  It is the key period in your life where you have the capacity to build the basis of your financial freedom. In fact, according to Meg Jay, psychologist and author of The Defining Decade, “The foundation you build in your 20s will define the rest of your life. Take yourself seriously.”

The average college graduate starts full-time work at 22 years old. That means there are eight glorious years to tackle debt and save money before you hit the dreaded 30s. If the average Millennial contributed maximally into both a Roth IRA and Individual IRA during those eight years, they would have $88,000 (ignoring the time value of money) saved for retirement by the time they turn 30. That’s some serious cash.

Let’s consider how we arrived at this number of $88,000 for our retirement savings accounts. A Roth IRA is a retirement savings account that allows you to contribute post-tax money and your money then grows tax-free. The annual contribution limit in 2015 to a Roth IRA, depending on your income, was $5,500. In contrast, an Individual IRA is a retirement savings account that allows individuals to contribute pre-tax money and the savings growth is tax deferred. The annual limit for an Individual IRA in 2015 was also $5,500. Therefore, if you contribute maximally to both accounts you end up with an annual savings of $11,000 towards retirement.  Thus, by the time you are 30, if you have maxed out your Individual IRA account and Roth IRA for eight years, you would have a balance of $44,000 in each account.

Considering, the median account balance of an Individual IRA in 2013 was roughly $32,000 and the median balance of a Roth IRA was roughly $15,000, you will have more savings than half of all the adults actually saving for retirement! That is huge! If you continue this trend of yearly savings, your retirement nest egg will grow and you will actually have a sustainable retirement.

Planning for the future doesn’t have to be a dreaded aspect of “growing old’. It can be an effortless process. Similar to how income taxes are taken out of your paycheck before you see anything hit your bank account, your retirement savings should be an automated process. Ramit Sethi, financial expert and author of I Will Teach You To Be Rich, argues “More than anything else, the psychology of automation is critical to successfully getting control of your finances.”

As Millennials, we grew up in an age of explosive technological growth – let’s use this to our advantage. If you set up an automatic deposit from your paycheck into your retirement accounts, the pain of the savings process is diminished and the act of saving is now, as those in the payment processing profession say, frictionless. Automating the savings process increases the success rate of continued savings and the practical aspect of acclimating to a slightly lower paycheck might take about a month.

All of this is not to say that you shouldn’t enjoy your 20s. What it does mean, however, is that if you begin to control your personal finances early, the downstream effects of good financial habits will pay huge dividends for the rest of your life. Automate your finances starting in your 20s and you will accelerate your path to financial freedom. Keep your 88K and this whole “adult” thing starts looking a little easier.

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