Share This Post


5 money myths that can hurt financial rookies as rules, climate change

By the Associated Press
Steer clear of credit cards. Hoard cash for a big down payment on a home. Put off retirement savings until student loans are paid off.

New graduates and young professionals are often faced with a barrage of financial advice. The challenge is separating the bankable wisdom from the myths, particularly at a time when so many of the well-established rules have been upended.

Consider the many moving parts: Sweeping overhauls of credit-card and health-insurance regulations were signed into law. And after suffering steep losses, retirement accounts are just now moving past where they stood at the peak of the market. The implications of such events can be difficult to process for those just starting their financial lives. But early decisions can dramatically alter futures.

Young people who’ve toiled to earn a degree still have more work to do.
“You want to sit down and plan, so you really have something to show for it down the road,” says Greg Womack, a certified financial planner in Edmond, Okla.
To avoid regrets, don’t buy into these myths:

Nobody is hiring in this economy
The U.S. unemployment rate remains stubbornly high at 8.9 percent. The bleak headlines are discouraging.

Still, positions constantly open up as a result of turnover, even when a company has a hiring freeze. The key is to be prepared to capitalize on those opportunities.
Rather than post a resume on general job sites, for example, look to establish targeted connections. That could entail joining a professional or alumni association to start meeting the right people.

“Make yourself a known personality,” says Eleta Jones, associate director of the Center for Professional Development at the University of Hartford. “So when a position does open up at a company, you’re at the top of everyone’s mind.”
That’s not to say there won’t be disappointments. But the outlook is improving.

Debit trumps credit as a way to avoid debt
Credit cards get a lot of heat for burying consumers in debt. Young people, in particular, can run into trouble as they set up new apartments, buy clothing for work or spend to fill the gaps left by an entry-level paycheck.

Debit cards, meanwhile, are viewed as a way to control spending and stay on budget.

Yet, when used responsibly, credit cards offer more advantages than debit cards. Users benefit from greater fraud protection and can earn valuable rewards for spending.

More importantly, those just starting out should understand the role credit cards play in building a strong credit history. That, in turn, lays the groundwork for when the time comes to buy a car or a home.

It’s true that carrying too high a balance or missing payments can seriously damage credit histories. But new regulations now protect consumers from many of the questionable practices that gave credit cards such a bad name.

Health insurance is a waste of money for the young and fit
There’s a higher percentage of uninsured among 19- to 29-year-olds than any other group in the country, according to the Kaiser Family Foundation. That’s, in part, because young adults are more likely to have jobs that don’t offer benefits.
Under the health care overhaul, however, young adults can now piggyback on their parents’ insurance plans until they’re 26. It’s an option worth taking advantage of, even if it costs a little extra to stay on a parent’s plan.

Paying for coverage may seem like a waste, but the truth is that a single medical incident could result in considerable debt. With a few precautions, that’s a scenario that easily can be avoided.

Retirement savings is the least of your worries
When paychecks are modest, it can be a struggle to keep up with rent, student loans and credit-card bills. Retirement seems like such a low priority.
But saving early is more of a necessity than ever before.

Companies are scaling back benefits and putting more responsibility for saving on workers. Today, just 15 percent of private- sector workers have a pension plan that guarantees a steady payout during retirement. That’s down from 39 percent in 1980, according to the Employee Benefit Research Institute in Washington, D.C.
The bottom line is that there’s more pressure than ever to build up a nest egg. Even if paychecks are stretched thin, be sure to sign up for a 401(k) if it’s offered. Earning compound interest for decades on even a small monthly contribution will make a huge difference.

Forget about buying a home without a big down payment
It’s a great time to buy a home, with the average rate on a 30-year fixed mortgage still below 5 percent. But young people who don’t have substantial savings might assume they can’t take advantage.

Although lenders have tightened standards, there still are options for individuals who have a solid credit history and a steady income.

Anyone can apply for a loan from the Federal Housing Administration, which only requires a 3.5 percent down payment. Borrowers also will have to pay for mortgage insurance.

“The economy has created a lot of hesitation about buying,” says Greg Herb of the National Association of Realtors. “But in a few years, a lot of people are going to be looking back and saying, ‘I wish I would’ve bought then.’ “


Share This Post

Leave a Reply