Did growing up during the 2008 recession cause millennials to distrust the financial system?
Millennial financial expert Amanda Abella, author of Make Money Your Honey, discusses the unique issues facing millennials with Douglas Goldstein, CFP®, director of Profile Investment Services, Ltd. Why do so many young people have financial fears? How can they overcome them and begin investing? Find out what millennials need to know in order to plan for the future.
Don’t use email for financial transactions
Emails and other quick forms of messaging leave open the possibility of miscommunication. Douglas Goldstein, CFP®, shares an example of what happened when an email with financial instructions was misunderstood and gives advice on how to communicate effectively with your financial advisor.
Follow Amanda Abella at www.amandaabella.com and on Twitter @amandaabella
Watch Have Millennials Lost Faith in the Financial System? on YouTube.Read the Transcript
Interview With Amanda Abella
Douglas Goldstein interviews Amanda Abella, financial expert and author of Make Money Your Honey. Amanda shares her thoughts on millennials, investing, and the “evil” credit card!
Douglas Goldstein: I'm very excited to be talking to Amanda Abella, who is a millennial financial expert. She's also written a best-selling book called Make Money Your Honey. Amanda, why is it that millenials are not really big on investing?
Why Aren't Millenials Big On Investing?
Amanda Abella: Well, we came of age during the great recession. I graduated in 2010, and went six months without a job. All of my friends are up to their eyeballs in student loan debt. We saw our parents' retirement savings disappear in the blink of an eye. We saw the financial system fall apart all around us, and there's a distrust of that.
With that being said, that didn't stop me from investing in the market. I encourage millennials to at least learn or use tools like Acorns or Betterment to at least begin investing, because the most valuable thing we have is time. We're still young and we're really missing out on a lot of money. We're leaving a lot of money on the table if we are not learning how to do that.
Douglas Goldstein: What are some of the excuses they tell you for why they are not getting started? Other than, “I watched the stock market crash when I was in college?”
Amanda Abella: That's a big one. Sometimes they say that they don't have the extra cash. To which point I respond, “There's lots of tools available now that perhaps didn't exist during our parents' time, when they were in their 20s.” You don't actually need a whole lot of money to get started.
Douglas Goldstein: Not needing a lot to get started means you can put in your $5, $10, $50 or your $100. But let's face it, to make big money, you've got to get money working for you. Do you think this makes them feel like they are investing when they start with such small sums?
Amanda Abella: Let's talk about compounding interest. You either need a lot of money or you're going to need a lot of time. Fortunately, what we have on our side is time. The more time you waste not doing it, that's money that you are leaving on the table.
Douglas Goldstein: What other tips do you have for millennials to get into the money-investing habit? I'm not even talking about money saving at this point.
Amanda Abella: It's important to educate yourself. There's a lot of confusing information out there. I was talking with a friend of mine who is a CFP. In his opinion, millennials are getting advice from their parents, but the way our parents invested was totally different from the way we are doing it. They still had pensions, which is not a reality for us. It's all about learning to educate yourself.
I remember the first book I ever read that perhaps talked about this subject was Suze Orman's. Maybe I'm not using that advice now but at least it was a starting point for me and it opened up that desire for me to learn more. As time has gone on, I have figured out what works for me and what doesn't.
Dealing With Fear of a Market Crash
Douglas Goldstein: I like that point. It doesn't matter which system you follow, as long as you follow a reasonable system that will help you become a good investor. It is true that millennials have the benefit of time and compounding interest.
I'm sure you'll remember the crash; the 2008 collapse of the market. We are now in the second longest bull market ever. The stock market has been going up for a very, very long time. People are saying, “Yeah, but if I invest now, it's just going to crash on me.” How do you deal with that?
Amanda Abella: I actually looked up some data on this while I was writing an article for a client. If you look at the data that we have in terms of how the stock market performs, sometimes you have double-digit returns, sometimes you have a 2008, but eventually it all levels itself out. That's why the time is so important because you have the time to right that stuff out. No one can predict the market.
Then the second thing is to make sure that you are diversified. This sounds really confusing to people in the beginning, which is why I insist that you should start somewhere. I started by reading books. I was with one financial institution. Then, as I educated myself more, and I learned that that financial institution was basically eating up my account in fees, I moved somewhere else.
It's important to learn as you go because you can adjust as you go. That's what you need to do when you're investing. Number one, realize that that's just the name of the game but eventually, it all levels itself out. Have that patience and use that time to your advantage.
Number two, learn about those strategies or get help from someone else to teach you the strategies so that you can ride out those bumps.
Douglas Goldstein: One of the things that people often say is that when you are young, you have the opportunity to take risks. Does that mean that you should be looking to hit a home run on picking the best stock or something like that?
Amanda Abella: I can only speak from personal experience here. I don't do individual stock investing; I'm not there yet. I started with buying target-date funds and then I moved to index funds because for me, it's not about beating the market. I'm okay with just mirroring the market. I don't have to beat anything because I know I can't.
That being said, that doesn't mean I'm not going to look into individual stocks later. It's just that for right now, this is what works for me and I think that's an important point. Not all investments work for everyone. You have to figure out what works for you.
Douglas Goldstein: Amanda, you just said, “Maybe later I will start to get involved in individual stocks.” I've been doing this for about 25 years and to this day, it is very rare that I will buy an individual stock on my own.
Mostly for myself, I'll use funds. I use money managers for myself too, and for my clients. As you said, diversifying and investing in ETFs, exchange traded funds, is a good way to spread out the risk.
I don't think that you ever have to get excited about picking or researching stocks. That's one of the things I believe that frightens people away. They think, “Oh, I have to invest but what do I know about the stock market?” Then they don't even get started. Fear keeps them from doing the right thing.
Amanda Abella: I often tell people that if you're going to get into money management, not just investing, you've got to keep your emotions out. Investing is one of those areas where you've definitely got to keep your emotions out of it.
Douglas Goldstein: What else do millennials find intimidating? In my day job as a financial advisor, I'll often talk to someone about the importance of saving and investing. They'll say, “I can't make ends meet. How can I put money aside?” As soon as I mention the word budgeting, they begin to shut down. How can the ideas of budgeting, saving, and investing be made to seem less overwhelming?
What is Volumes-Based Spending and Budgeting?
Amanda Abella: I don't have a budget. I do volumes-based spending or volumes-based budgeting. Basically, it's not necessarily a strict budget because that tends to repel people. Instead, I have found that once someone figures out what actually matters to them and what they truly value, and they make money goals based on that, then the ‘budgeting' starts to happen more naturally. It doesn't seem like such a restriction anymore because you're clear on what it is that you care about and what it is you actually want.
Douglas Goldstein: Does this actually work? It sounds to me like someone might say, “Yeah, I want season tickets to the Yankees and I also want a vacation or two this year because I deserve it.”
Amanda Abella: You have to be self-aware. I'll use myself as an example. The only reason I do anything is freedom. That's the whole thing. I run my business because I want to be free. I run a business from my laptop because I want to be able to travel, which comes back to freedom.
But it's just as freeing to me to have money and emergency savings as it is to have a travel fund. If I have money and emergency savings, I feel free. If I was to have some sort of an emergency, I know I have the freedom to pay for it and not to go into debt. That in and of itself is a sense of freedom. People tend to think it's either/or and it's not necessarily true.
Douglas Goldstein: Comment a little bit more on debt because I know that you have an opinion on credit cards that some people don't really hold by. What is your model for using credit cards for millennials?
Dealing With The “Evil” Credit Card
Amanda Abella: I love credit cards. I've gotten a lot of free stuff from credit cards. I think credit is a great tool if you know how to leverage it. I've gotten over 15 free flights thanks to credit cards. I was hanging out waiting for a flight in a lounge that I don't even have to pay access for, thanks to one of my credit cards.
There is this whole thing of, “Oh, credit cards are evil. You are going to get yourself into trouble,” Quite frankly, the credit card isn't the problem. The credit is not the problem either. It's a lack of self-awareness that's the problem. That's where the values-based spending comes in because if you are certain and clear about what matters to you, you also start becoming more self-aware.
Douglas Goldstein: Yes, I'm wondering if that's an easier said than done kind of thing. Were you always like this? Did your parents teach you this? How did you come by it?
Amanda Abella: No. I was not always like this. I spent any dime I made in college. My parents taught me to be risk averse so I was pretty scared of credit cards.
I'm now going to be honest. There was a friend of mine who was travelling all over the world and doing whatever he wanted. I asked him how he was able to afford this. He told me about the credit card points, and I had a lot of the same concerns. I was like, “How do I that without getting into debt?” or, “How do I do that without jacking up my credit?”
He started teaching me, and I decided to get started with one credit card. I realized that the credit card was a powerful tool if you knew how to use it. I had to slowly train myself to get there.
Douglas Goldstein: It's pretty much like trading options. It works out well for some people, and not so great for others. I look at the statistics and it makes me worry. In my experience, people tend to be too emotional with the right things. With credit cards, they already give you everything you want, when you want it. There's no such thing as delayed gratification when you have a credit card. I just don't think that's good to a person's financial health.
Amanda Abella: There are two things I want to say about that. Number one; there are people who can't handle a credit card. I have friends who literally cannot walk into a store with a credit card in their pocket. But again, they are self-aware enough to know that so they don't bother bringing one to them.
Number two, which has nothing to do with any financial method, is doing yoga or some sort of mindfulness practice. That helps you to become less reactive.
A lot of people end up overspending because they are controlled by their emotions. “I had a rough week at work so I deserve to jack up my credit card.” Instead of that kind of thinking, one should realize that everyone has a rough week at work. It doesn't mean you need to go spend money.
But if you are doing some sort of practice like that, where you are becoming more self-aware of your emotions and how you react to things, you are able to monitor it or you are able to catch yourself in that moment. At the very least, you become less reactive. Sometimes, that 30-second delay between something happening and your reaction is all you need to make a better decision.
Douglas Goldstein: That is a good tip. Amanda, how can people follow you and follow your work?
Amanda Abella: My website is amandaabella.com. You can sign up for the email list and get a free financial class. You'll learn about my favorite tools and apps for better managing your finances and I also talk about investing. You'll also be notified when I have any podcast episodes going live, or any reviews of financial tools that are out there.
You can also follow me on Instagram at Amanda Abella. My Twitter handle is @amandaabella
Douglas Goldstein: Amanda Abella, thank you so much for your time.
Amanda Abella: Thank you so much for having me.