Why Millennials Are Making This Huge Money Mistake
An alarming trend is emerging among young Millennial workers around the country. According to a recent survey from ETrade, over a third of Millennials are making withdrawals from their 401(k) plans or retirement accounts. They are using the money for everything from paying down debts, making large purchases, and going on vacations. 401(k) and other retirement plans compound interest overtime, thus increasing in value. When young workers withdraw from retirement accounts prematurely they are losing the interest they could have gained.
Why are millennials making this huge money mistake?
Lack of Education – only 34% of states require a personal finance course for high school students. High school graduates are often left taking out student loans or making other major financial decisions with little to no education. Once young adults reach college, unless they are pursuing a finance or related degree, it is unlikely that they will be required to take any personal finance coursework.
Cashless Society – as American society adopts more and more cashless payment methods, cash is becoming less and less conceptual. Young adults view account balances as numbers on the screen versus a physical entity. Cash is essentially invisible to young adults and this disconnect can lead to irresponsible financial decisions like retirement account withdrawals.
Investment Misconception – a recent survey from Bank of the West reported that 1 in 3 millennial home buyers withdrew money from a retirement account to put a down payment on a home. Buying a home is an investment in an appreciating asset, but this purchase can be made without retirement account withdrawals. According to Down Payment Resource, there are over 2,500 down payment assistance programs available nationwide. Before withdrawing from retirement accounts, young home buyers should meet with a loan officer and find out if they qualify for some form of assistance.
With social security’s uncertain future, it’s more important than ever that young workers are saving for retirement. Independent retirement accounts or company plans with matching opportunities are some of the ways Millennials can invest in their financial future. Withdrawing from these accounts prematurely can cause continued financial stress later.
Sources: CNBC, USA Today