As kids, we ran to our parents for solutions to everything. From needing comfort for a scraped knee to encouraging us to try out for a sport, parents always had the answers. It makes sense we would also take their money advice as law. The only problem is that we no longer live in the same economy or financial state that our parents did; we must blaze our own trail.
Here are eight money lessons your parents taught you that you should ignore.
Money advice you can ignore
1. Higher education is a good investment
Older generations grew up believing a good education would equal sufficient job opportunities and a solid career path.
These days, however, investing in higher education is no guarantee of income or career. Of course, the more education you have in a certain career field, the higher chance of landing a secure job. But that doesn’t always mean you need to invest in a four-year degree and take on the burden of student loans.
Take more budget-friendly education options into consideration, such as community colleges and state schools, opt for night classes at a local university, or enroll in online programs to further your education without spending a lot of money.
2. Banks are the best place for money
The safest place to stash your money is a bank, right? Well, maybe not anymore. Savings accounts at banks can be likened to stuffing your money under a mattress. In other words, the rate of inflation will outpace the small amount of interest your money will earn in a conventional savings account.
In the past, our grandparents and parents were able to see a solid rate of return on their savings accounts, but this is no longer the case. To turn a decent profit nowadays, you must look for alternative vehicles to invest your money. Credit unions, for example, typically offer higher rates of return on deposit accounts and higher interest rates on certificates of deposit (CDs).
3. A budget helps you spend less
For most baby boomers a budget is basically the bible for managing money successfully. If you want to spend less, traditional money advice says to create and stick to a budget. But that financial strategy doesn’t work for this economy or generation.
In fact, according to a recent study, 43 percent of Millennials don’t use a budget to manage their saving or spending habits. Instead, they focus on tracking their money using various sorts of spending plans versus strict budgets.
4. Owning a home is better than renting
Purchasing your first home has been a longtime benchmark of the American Dream. But owning a home is not always in the best interest of everyone else’s financial standing. In many cases, renting is a more financially-sound move than purchasing, even though it’s contrary to old school money advice.
Renting makes more sense for younger individuals and families who aren’t ready to settle down yet, or who move around a lot exploring new career opportunities. Owning a home can place unnecessary stress on the owners, leading to financial disaster.
5. Paying with cash is best
It’s proven time and again that cash is, without a doubt, a great way to reign in your spending. The only problem with this is we now live in a digital world, and you could be missing out on the many benefits that come with using plastic. Credit card companies offer a plethora of advantages and features, not to be mention cashback rewards, to consumers who use credit.
Not only that but paying with a credit card is often more convenient and secure than carrying around wads of cash. The idea of always paying with cash may have worked for your parents but it’s not necessarily the best option today.
6. Prioritize saving over earning
You’ve likely heard the phrase “a penny saved is a penny earned” from your parents. And while this money lesson sounds like wise advice, it’s a flawed mindset. In the past, there was a priority placed on saving and hoarding money as a way of building wealth, but these days the real key to wealth is earning.
Too many of us focus on scrimping pennies and saving a few hundred dollars in our budget every month, but today’s financial woes come from not earning enough. Instead of spending all your energy on not blowing your budget, change things up and bring in more money with side hustles or a passive income stream.
7. Investing is only for the rich
Generations ago, hiring a financial advisor and investing money into the stock market was only for the rich. But thanks to technological advances and financial startups, anyone can invest and turn a good profit. Young financial advisors work with startups to offer investment opportunities for as low as $25 per month.
Mutual funds allow multiple shareholders to form a group that can invest and trade the same type of holdings while diversifying their risk. Investing in real estate has also become a young person’s game with opportunities to flip houses for a profit or become landlords, no matter what age.
8. Carrying credit card debt builds credit
This money advice is completely contrary to how you should build good credit. Carrying a balance on your credit card does not help increase your credit, and can hurt it if your balance is too high.
The best way to improve your history of credit is to pay off your credit card balance in full each month. Don’t pay excessive interest charges in the hopes of building better credit by carrying a balance. Buck this money myth and start paying your balances off completely.
Find the money advice that works for you
Our parents may have learned many of their financial strategies from their parents, but times have changed and it’s important to experiment with common advice for yourself. Take your parents money advice to heart, but verify the information with a trusted advisor or financial expert before proceeding.
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