Children of the Great Recession are coming of age. While they are optimistic about their financial futures, their money habits tell a different story.

Dear Readers,

A recent Schwab survey about the money attitudes of young Millennials (ages 21 to 25) and Gen Z (ages 16 to 20) showed an interesting dichotomy: When it comes to their financial future, today's teens and young adults are both optimistic and unrealistic. I suppose that shouldn't be too surprising. Youth is filled with optimism—and I love that. But when it comes to managing money, a healthy dose of reality is important in creating a secure financial foundation.

Statistics reveal both the positive and the negative

Here are a couple of revealing statistics from the survey that demonstrate the dilemma:

• While more than 80 percent of young people surveyed saw their parents experience financial hardship during the recession, 76 percent believe their own financial future will be better.
• The behavior of this same group isn't so positive. Average savings is a pretty impressive $1,600 but unfortunately average debt is more than $8,000—with Millennials saving only 15 percent more than Gen Z while accruing 169 percent more debt.

The two stats don't quite compute because creating a secure financial future means managing your money wisely in the present. A few other misconceptions also are cause for concern. For example, according to the survey, young people expect to retire at age 60—seven years before they'd be eligible for full Social Security benefits (and ten years before they would get the largest payout). Plus, more than half believe they'll receive an inheritance from their parents, which is increasingly less likely with longer life spans. In fact, according to a 2011 Bureau of Labor Statistics study, on average only 21 percent of people actually received an inheritance of any kind between 1989 and 2007. 

They also showed a lack of understanding about the fundamentals of debt, particularly the difference between debt that can help them build their financial future versus debt that can lead to financial distress. For instance, only 54 percent believe a mortgage fits the 'good debt' category, perhaps related to seeing their parents lose their homes during the great recession. Even more significant—and disturbing—is that a third of respondents do not recognize revolving debt, such as carrying a credit card balance, as 'bad debt'.

On the positive side, there's a real desire to learn about money management. And almost 40 percent of the respondents see their parents as the most trusted source for financial advice. Here's something else I find very encouraging: Young adults today say their parents are more likely to talk to them about money than other traditionally sensitive topics such as sex or drugs. Maybe we're finally breaking the money taboo! 

Five ways to turn youthful optimism into lifelong action

Taken all together, these survey results point to a great opportunity for parents to harness this youthful optimism and help their kids take concrete steps toward the bright financial future they envision. Here's what I suggest:

1.     Talk openly about your own financial mistakes—and successes. Hopefully, we learn from our own mistakes, and perhaps our kids can learn from them too. Show them where you've failed (A bad mortgage? A late start on retirement savings?). If you can add in some real numbers, so much the better. But show them your victories too—and what you had to do to get there. There are lessons on both sides.

2.     Have your kids set goals and make a plan to meet them. You may have heard the saying, "A goal is a dream with a deadline." Makes sense, especially when it comes to turning optimism into reality. So help your kids articulate their goals and come up with a plan and a timeline to achieve them. They'll need to figure out how much money they have, how much more they need to save, and what other financial decisions they need to make along the way. If something doesn't support the plan, don't do it!

3.     Advise them to live below their means. This is the key to achieving long-term financial goals—as long as you save the difference. Talk in terms of trade-offs and try to demonstrate with your own behavior. If you or they spend money in a certain way, what's the gain? What's the loss? How does an expense fit in with a larger plan? How can saving rather than spending support their goals?

4.     Put debt in perspective. Not all debt is bad if it's managed properly. Explain to your kids that a mortgage or a student loan can work in their favor. On the other hand, they need to understand the high cost of credit card interest. And as for student loans, a smart guideline can be to limit the amount they borrow to what they can reasonably expect to earn in their first year's salary.

5.     Keep learning about money. This is something we can all do. As life changes, so do our financial needs. From starting to save for retirement, to buying a home, to learning to invest, to refining our financial plan—there's always more to learn. Take it one simple step at a time, but keep taking those steps.

Finally, here's another positive takeaway from the survey: Young people want to be financially independent. And living without help from their parents is how a majority of them define financial success. To me, that's not just optimism; it's an underlying sense of responsibility. If we as parents and financial mentors can help this generation achieve that goal through a combination of practical guidance and emotional encouragement, perhaps we can all feel more optimistic about the future.

 Have a personal finance question? Leave it in the comments. We can’t respond to questions directly, but your topic may be considered for a future article. 

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The information provided here is for general informational purposes only and is not intended to be a substitute for specific individualized tax, legal or investment planning advice. Where specific advice is necessary or appropriate, consult with a qualified tax advisor, CPA, financial planner or investment manager. 

The online survey was conducted by Logica Research (formerly known as Koski Research) from June 12 to June 20, 2018, among 2,000 Americans aged 16 to 25. Quotas were set so that the sample is as demographically representative as possible. The margin of error for the total survey sample is three percentage points. More information on the survey results can be found at www.aboutschwab.com/financial-literacy.

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