For many young adults, homeownership isn't yet a priority. These other financial issues should be
Gianna Agostinelli is off to a solid financial start. At 22, she has a degree from Arizona State University, a full-time job, investments in the stock market, no student loans and plenty of cash to save and spend on fashion, dining and other interests.
But she doesn't plan to buy a home anytime soon.
Agostinelli lives with her parents in north Scottsdale, Arizona, though she’d like to move closer to central Phoenix to cut down her commute.
“I’m planning to rent at some point,” she said. But as for becoming a homeowner, “I haven’t even thought about it.”
Agostinelli isn’t alone. A hefty 56% of young adults ages 18 to 24 were living with their parents last year, the Census Bureau reported. A National Association of Realtors survey found that homeowners were 36 years old on average by the time they bought their first home last year, a record high age and up from 33 in 2021.
While that might seem depressing to some people, there is a flip side: Young adults who can avoid mortgage payments for at least a few more years often have plenty of money to spend, save and invest, especially if they don't need to rent. For them, other financial issues might have more significance. Here are some of them:
Budgeting and cash flow
Many Americans struggle to make ends meet, and a lot of this has to do with a lack of budgeting, which involves tracking expenses against income. Budgets often are compiled on a monthly basis, so it's important to factor in expenses like insurance bills that you might not pay every month. Budgets can live on spreadsheets, various apps or simply by putting pen to paper.
One method is to divide your expenses into three buckets, earmarking 50% for necessities, 30% for wants and 20% for savings and debt repayment, as described in a NerdWallet article. Necessities include groceries, car costs, utility bills and the like, while wants include dinners out, movies, trips and gifts. Young adults and others who can save even 10% of their paychecks consistently will find themselves in good financial shape. Minimizing debt is part of the process.
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For starters, young adults and others should strive to save enough money to meet three to six months of expenses, said Thomas Mitchell, a certified financial planner at OneAZ Wealth Management in Phoenix. He also suggests trying to save half of each pay raise, preferably in a 401(k)-style retirement plan or other long-term account. Younger adults can look forward to many raises over their careers.
Living at home, Agostinelli said she saves almost half of her paycheck. But that still leaves money to spend on fashion, dining out and other fun things.
Identity theft and other dangers
Online fraud wasn't as much of a concern for prior generations but it's a huge risk for people today, especially younger adults. Crooks are out there, trying to get into your checking account, steal your income-tax refund, open credit cards in your name and so on. Con artists might also try to glean your personal information over the phone, but it's often more effective though emails, text messages and the like.
"This is the iPad generation for almost everything they do," said Mitchell, referring to members of Generation Z who are mostly in their teens to mid-20s. Smart phones and other mobile devices make it easy to save, buy things and interact with others but also heighten the odds of running into shady characters, he adds.
Common sense and skepticism go a long way in deterring criminals. Smart practices include safeguarding personal documents like your Social Security card, shredding unneeded paper account statments, using strong passwords and not responding to suspicious text messages, as explained by the Federal Trade Commission .
Unmarried adults who are active on online dating sites should be careful, too, as romance scams are among the fastest-growing white-collar crimes as reported by the FTC. That's a timely reminder with Valentine's Day coming up.
Credit and credit reports
Americans are judged by their ability to pay debts, so younger adults and others should learn to manage their credit responsibly. That includes understanding the factors that go into credit scoring, and they're not always obvious. For example, shopping around is often a good idea on most purchases, but shopping around for too many credit cards or loans can hurt your score. It's a good idea for young adults and others to learn the basics.
Credit scores are important because they help determine whether you can qualify for loans — credit cards, auto loans and, eventually, home mortgages. They also affect how much you can borrow and what interest rate you pay. Scores also can factor into seemingly unrelated activities such as renting an apartment or obtaining utility services.
Scores, in turn, are based on the transactions reported in your credit reports. It's a good idea to check these periodically for accuracy. You may obtain free credit reports at annualcreditreport.com.
Getting started with investing
Homeownership is one way to build wealth, but there are others. In particular, investing in the stock market over many decades can be a huge wealth generator.
Over the last century, the broad stock market has generated an average return of about 10% a year, assuming you reinvest all dividends. At that rate, your money would double every seven years or so. "The younger you can start investing, the better," Mitchell said.
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Many employers offer 401(k)-style retirement plans, and these frequently include much bigger lures such as matching funds that can total several thousand dollars a year. These tax-sheltered plans also make it convenient to invest on a regular basis through paycheck deductions, typically into well-diversified stock and bond funds. Diversification is critical for younger investors with lengthy time horizons. Individual companies can go bust but broad baskets of stocks rarely do, instead growing long-term with the economy.
Preparing for that first home
Homeownership is a bit more elusive lately, with 66% of Americans owning their dwellings, down from 69% in 2005, according to the Federal Reserve Bank of St. Louis. But if housing prices cool off further and if mortgage interest rates moderate, first-time buyers will find homes easier to afford, especially as their earning power rises.
In the meantime, prospective buyers can prepare for the financial responsibilities of homeownership by adopting other smart behaviors. These include budgeting to live within your means, avoiding fraud losses, managing debts to boost credit scores and building up wealth through the stock market, preferably in tax-sheltered accounts.
Roughly half of young adults don't think they'll ever own a home, said Mitchell, citing a recent study. "But they can and they will," he added.
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This article originally appeared on USA TODAY: Top financial issues young adults should focus on before homeownership