Financial Literacy for Millennials: Five Essential Things to Know

Money is hard. Or at least, it’s hard to earn, hard to hold on to, but easy to spend. If you’re just getting started, here’s a quick list of the essential building blocks of financial literacy for millennials. Consider this a very brief intro, a 101 for a 101, if you will.

1. Save Money, no matter how little
Yes, duh, it seems obvious. But for many folks, it isn’t. Their paycheck hits, they pay the rent, and blow the rest. Find a way to save some percentage of your income — 3%, 5%, whatever you can afford — and stick it into your rainy day fund or a (safe) part of the stock market.

2. Invest in the Stock Market
Historically speaking, the stock market is the single greatest engine of wealth creation in human history. Full stop. Want to be able to throw yourself a millionaire party in a few decades?

Buy and hold low-cost index funds (like $VTI, $VTSAX, etc). Don’t panic sell. Just. Keep. Buying.

Over the long run, the magic of compound interest — and the might of relentlessly profit-seeking corporations — will do their thing.

3. There’s a place for bonds
Historically, bonds had pretty low yields. But in today’s (2022) high-yield environment, I Bonds are a pretty great risk-free(!) way to earn 6%+ on your cash.

4. Use credit cards wisely.
Sure, there are studies out there about how paying with plastic increases your propensity to spend money. But if you’re disciplined, credit cards can provide opportunities to indulge in things like travel, all while simply paying for groceries.

5. Rent isn’t always throwing money away
Buying a house these days seems impossible challenging. But paying rent doesn’t always mean you’re throwing cash away. Buying a house comes with a host of costs – appraisal fees, closing costs, property tax, insurance, maintenance, etc – that don’t always make it a clear-cut calculation. So don’t feel bad if you’re still renting. And remember to include opportunity cost. What would you do with that cash in the interim? Can it earn you money — invested in the stock market, or in bonds — over and above whatever appreciation you might see in housing?

The current environment (high mortgage rates, low housing availability, and low build levels) makes it a uniquely challenging time to get into a home. But Nassim Nicholas Taleb put it well. Let’s hope the same ethos applies to housing, as well.

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