Six ways to avoid being young and in debt.

How to save if you'’re already under water.

The 51 million1 Americans that make up Generation Y (or Millennials)—people born in the 80s and 90s—have faced the daunting task of entering the workforce during, or shortly following, the latest recession. Those lucky enough to find or keep jobs in a contracted market may also have to face the additional hurdle of paying down historically high levels of debt.

According to a recent survey, more than half of millennials say debt is their biggest financial concern, with 42% adding that their level of debt is overwhelming. Student loans are major contributors—student loan debt in the U.S. reached nearly $1 trillion in 20122.

While debt from education is considered “good,” nearly half of this generation’s debt comes from non-asset building, or, “bad” debt from credit cards and other types of loans.3 Whether this is due to the sluggish job market requiring young people to rely on credit to stay afloat until they are employed, or to instantaneous access to an online marketplace, it’s a concerning trend.

But, while Millennials have bills to pay, most acknowledge that they also need to save, and many are anxious to get started. After all, some saw parents struggle financially and lose ground with their own savings goals during the recession.

Here are some tips to keeping your head above water, and building a savings plan:

  • Know what you owe
    Make a list of your various loans and interest rates. Plan to pay off those with the highest interest rates, or those with variable rates that may increase, first. If you’re unemployed, you may be eligible to defer your loans for a period of time. It’s better to ask the loan company about your options than to make assumptions or to default. Want more tips?
  • Build your credit by paying on time
    Pay on time. It’s critically important to maintain a good credit score. Especially if you’re planning to purchase a home, finance a new car, or apply for a small business loan in the future.
  • Create an emergency fund
    After organizing your loan repayments, try to put aside a small amount every month for emergencies. With the job market uncertain, it’s important to have cash at hand ready just in case.
  • Enroll in your 401(k) plan
    If your company offers a 401(k) savings plan, enroll. You don’t have to contribute the maximum, but if you don’t contribute at least enough to get the company’s match (if they offer one) you’re leaving money on the table.
  • Make the most of your age
    Save early, save often. Take advantage of the long-time horizon you have for your money to grow. You have decades ahead of you—starting today means that you have time to weather ups and downs in the market, and you can take advantage of compounded interest. And, if you’re considering life insurance, it is often less expensive for younger buyers.
  • Protect your loved ones
    If you pass away, your loved ones may be responsible for paying off your debt. You can protect them by purchasing life insurance. In addition, depending on the type of policy you purchase, you may be able to take a loan against your policy’s cash value to help with future expenses, such as buying a house, as well as to help pay down any school loans you may have. Speak to an expert about how life insurance can provide options.

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Further Reading
  • 1 Sowing the Seeds for Retirement: Gen X and Gen Y Markets, LIMRA, 2013
  • 2 Study by Harris Interactive and the American Institute of Certified Public Accountants
  • 3