How Cash-strapped Millennials Can Take Control of Their Finances

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Author Erin Lowry discusses investing tips for millennials.

Investing may seem impossible for young people who are early in their careers and still paying off their student loans. But author Erin Lowry insists that it can be done – and she’s living her own advice. Lowry and her husband, a public school teacher, are both in their 20s and paid off $17,000 in student loan debt in under a year while living in expensive New York City. In her new book, Broke Millennial Takes on Investing: A Beginner’s Guide to Leveling Up Your Money, she offers advice to her peers on how they can take control of their finances, deal with debt and invest in a way that meets their financial goals while remaining true to their social values. Lowry spoke about her book during the Knowledge@Wharton radio show on Sirius XM. (Listen to the podcast at the top of this page.)

An edited transcript of the conversation follows.

Knowledge@Wharton: Let’s start with your moniker, Broke Millennial, which is also your website and blog. It seems to speak to the situation that your generation finds itself in, dealing with college debt, careers and saving for retirement.

Erin Lowry: That’s the hope. For me, it all started six years ago as a blog. I was very fortunate to grow up in a family that talked about money all the time. What you grow up around is normal, so I assumed everyone talked about money and had this base level financial literacy.

Keep in mind, I was a journalism and theater major in college. Business was not my path, so I still felt in control. When I moved to New York, I was only earning $23,000 my first year there, hustling at three different jobs, but I still felt that kind of in-control sensation. Then I started to realize that a lot of people don’t feel this way, and I wanted to do something about it.

I started the website as a way to share stories about what my parents had done to teach me about money, what I was learning in the school of hard knocks, and I was very narrative in a way that I hoped would trick people into learning about money.

Knowledge@Wharton: I think that’s an important component because the financial struggle isn’t exclusive to millennials. There are so many people out there who don’t invest because they believe they do not have the means to do it. But you believe there is a lack of understanding about what investing is and how you go about it.

Lowry: The biggest misunderstanding is that people don’t consider themselves an investor if they have a retirement plan, especially if that’s a 401k, 403b or even just an IRA. People don’t connect that in their brain as, “Oh, I’m investing.” I would love to change the language we use, because we say “saving for retirement,” and that’s a misnomer. You are investing for retirement. I think that simple language shift really can make more people feel empowered to be an investor, even outside of retirement.

My first book was called Broke Millennial: Stop Scraping By and Get Your Financial Life Together. At the end, there’s a short chapter on investing, and at the bottom of that chapter, I was like, “Hey, if you want to learn some more, here are some great books.” I started to get emails from people who said, “Hey, I checked out some of those books you recommended. Even though it says it’s for beginners on the front, this still feels too complicated.”

It’s true. A lot of what’s out there kind of assumes you have a base level understanding of the markets that a lot of us don’t. It’s not something we’re ever taught in school. A lot of parents don’t communicate about it. I wanted to write a book that I felt really took you back to the very beginning. I’m not an investing expert. I talk about that right at the top. But I interviewed a bunch of very smart people who are, and I like to position myself as the translator.

“What you grow up around is normal, so I assumed everyone talked about money and had this base level financial literacy.”

Knowledge@Wharton: What are the key components for those who aren’t savvy about investing?

Lowry: Honestly, the language is one of the No. 1 things. That’s such a big intimidation factor for folks — the way we talk about investing, the terms we use. Even something as basic as “index fund.” A lot of people don’t know what that means. If you say, “Oh, just go and invest in some basic index funds,” they don’t know where to go. They don’t know how to start. They don’t even know what it is. It’s getting that common language down, and then continuing to reiterate the tried and true principles of starting early, being consistent, and why time is so important and why you should start when you’re young.

I also really like to push the fact that life tends to get more complicated, not less. Sometimes we have this belief that, “I’m 25. I’m not making much now. When I’m 35, I’m going to have it together. At that point, I’ll have the extra money to start investing.” Well, you might be making a lot more money, but you also might be married. You might own a house. You might have some kids. Life’s more expensive. It doesn’t mean you’re going to have a ton more to throw into the market.

Knowledge@Wharton: Is there a misconception that investing is not for the middle class or working class?

Lowry: One of the taglines I’m using for this book that’s on all the stickers and branding is, “Time to shake the misconception that investing is just for the wealthy.” I do think that is a fundamental thing we’re fighting against. Unfortunately, with things like minimum initial investments, it can feel very out of reach for people who don’t have $3,000 to just throw in. But there are other steps you can take, and there are also brokerages that are starting to offer no-minimum funds and options to get you started.

Knowledge@Wharton: You discuss whether a 401k or 403b is enough. Do people need to consider other investment tools?

Lowry: Part of that is everyone continues to talk about, will Social Security be around when I’m older? If you want to be conservative about it, assume it’s not. Then if it is, great — you still get some extra money. I do think it’s ideal to be investing in taxable accounts outside of retirement for a variety of reasons. One, you probably have shorter-term goals than retirement that investing is really going to help you out on, especially if it’s 15 to 20 years away as opposed to 30 to 40 years away. You don’t want to just be saving. You should also be investing for those goals.

Knowledge@Wharton: Can you talk about social impact investing, which is of growing importance to your cohort?

Lowry: There are options, especially when you look at different robo-advisers and different brokerages that focus almost exclusively on impact investing. If you feel like, “Oh, I don’t want to start because there are too many unethical companies I don’t want to invest in,” then impact investing, socially responsible investing, ESG (environmental, social and governance) compliant funds are all options for you to check out.

The other thing I always like to point out is that you collectively have a voice with other people, especially with a brokerage. If there is a particular company that you want taken out of a fund, you can all rally together and quite possibly get a company removed. People like to compare investing to gambling. It’s not, because when you put down money at a blackjack table, you don’t own a piece of the Bellagio. When you are an investor, you have a voice, you have a say, you own a small piece of the company. And people will listen if you collectively work together.

Knowledge@Wharton: You mentioned robo-advisers. Where do you stand on them versus a traditional adviser?

Lowry: Ultimately, and this is really true of anything related to your money, it’s about the value that it brings to you. You’re going to be paying a fee for all of these different services. You need to be doing the math and asking, “Is the fee that I am paying worth the return that I am getting, the value that I am getting from this service?” I particularly think it’s very important to look at this with investing, because every dollar you’re paying in a fee is a dollar less that’s compounding for your future. Look down to the nitty-gritty and make sure that you are paying the least amount in fees that you can to [produce] maximum growth.

I do think robo-advisers or a traditional financial planner can certainly be of help, particularly if you’re just getting started and feel very overwhelmed and don’t know how to begin, how to build your portfolio. You also are looking at things like rebalancing on a more regular basis than you would be doing, looking at tax-loss harvesting. You might not be doing that by yourself, so there definitely can be some added value.

“I’m not an investing expert. But I interviewed a bunch of very smart people who are, and I like to position myself as the translator.”

When we go through a market correction or even a recession, you usually start to get emails from them that say things like, “Don’t panic. It’ll be OK. We have prepared for this. This is why it’s balanced the way it is. You are aligned with your time horizon and your goals.” Something as simple as that really does help people.

Knowledge@Wharton: Let’s use the example of somebody out of college who has $20,000 in student loan debt. How do they need to consider the balance between paying off that debt and trying to invest?

Lowry: What’s your access to start investing? For a lot of people, that is your 401k or 403b or an IRA. Especially if you have an employer match, it is very important to try to at least put in enough money to get the full match. But for some people, they don’t have the flexibility in their budget to even do that. What I like to advise in that particular scenario is that you put in a percent, because I promise you barely notice the difference in your paycheck and at least you’re still getting a match at 1%. Then every six months, try to push it up by another percent until you get to at least the full match.

You’re still contending with your student loans in tandem. Now, once you get to a point where maybe there’s a bit more flexibility in your budget, you’re putting more into your 401k, you want to be investing in a taxable account outside of that. You have to do the math on the interest rates. Across the board, the people that I interviewed almost exclusively said 5% was their cutoff. If your interest rates on your student loans were above 5%, it probably made a little more sense to actually put money towards paying them down faster rather than to focus on taxable investing. What’s your risk tolerance, your debt tolerance? You could probably balance them in together.

Knowledge@Wharton: What’s your advice on investing apps?

Lowry: Apps are a great way for people to get started if they feel like they can’t put enough away to open a traditional brokerage account, perhaps because of the minimum initial investment. The one thing I do like to always caution about the apps is there is a fee. That fee often sounds super low. It’s around $1 to $3, depending on which service you’re using. I live in New York City; I can’t even do a load of laundry for $1. That feels like a great deal to get me to start investing, except if you’re only doing a few bucks a month, it’s eating all of your returns.

“I really like to push the fact that life tends to get more complicated, not less.”

The rule of thumb I like to advise is at least $25 to $50 needs to be going into the app. Have it on an automatic contribution. You can double down with the round-up or whatever kind of nifty gimmick they have within the app to make it be a little bit more, but you need to be more serious than just $5 a month.

Automating makes so much sense in so much of our financial lives, and it does make it a lot easier. Most of these apps do have the option to set up some form of automatic contribution, which is great. I also like that most of them have a strong educational component. It really is geared towards rookies.

Knowledge@Wharton: A lot of people don’t know how to go about selling an investment. What is your advice?

Lowry: It depends on how you’re investing, and I think the big thing is to always be thinking about the tax implications of making that move. I obviously cannot give you generic advice about what that’s going to look like for you.

I actually went through it myself. I had never purchased an individual stock before writing the book. I was strictly an index fund investor. I realized if I’m going to write about it, I probably should go through the process of doing it. Around that same time, I got married and decided to sell one of my investments in order to put a lump sum towards my husband’s student loans. You have to decide what the timing is going to be, how you’re going to sell it, what the tax implications are. There’s a lot to think about.

Knowledge@Wharton: What do people need to know when it comes to investment scams?

Lowry: It’s very important first to explain that just because that particular company goes under doesn’t mean your investments go under. You’re going to, in kind, transfer somewhere else. So, that’s one of the first things. But it’s very interesting talking to the experts and asking about this. A lot of people said, “It’s such cliché advice, but trust your gut.” If it smells wrong to you, it probably is. If you’re going through a traditional brokerage, that’s not who you have to worry about. You really do need to worry about your buddy on the street who’s got a great idea that’s going to be the next big thing. Of course, you also need to worry about untested asset classes. It’s an easy thing to throw under the bus, but cryptocurrency is a great example right now.

Knowledge@Wharton: There is a lot of conversation around financial literacy education, specifically on offering it to kids when they are younger so that they can be better prepared in adulthood. That seems to play off the theme of your book, correct?

Lowry: It does. I would love if we had financial literacy happening in school when we’re younger. The problem is that it doesn’t actually connect for a lot of people until they’re in the lived experience. One thing that’s great now is there are so many different resources between radio, podcasting, books, TV shows, magazine, blogs, social media. There are so many different ways to be connecting with people and for people to learn.

One thing that I would like to see — as a very simple thing to do –is have an opt-out on a 401k, instead of opt-in. Have it be just automatic that contributions are going into your retirement plan, unless you choose to do otherwise, because you do have that kind of inertia where people are like, “Oh, I remember logging in and trying to figure out how to build a portfolio for a 401k, and I just kind of freaked out and clicked out and walked away from it because I didn’t know what any of it meant and there was no one there to explain it to me.” I was fortunate that I could call my parents, but not everyone has that situation.

[There should be] a dedicated person — it doesn’t have to be in the office — that you know to call at perhaps the brokerage where your 401k is set up so you can just talk through it with someone. I never personally went through having any sort of guidance in that way, and I wish that we offered that to everyone.

“People like to compare investing to gambling. It’s not, because when you put down money at a blackjack table, you don’t own a piece of the Bellagio.”

Knowledge@Wharton: Are you a better investor now after working on this book?

Lowry: Definitely a lot more confident. I will say I still would not be dabbling in individual stock-picking outside of the one that I experimentally purchased for the book, but I do definitely feel more comfortable just having the conversations. But I think there’s still always an element of impostor syndrome to a degree. I always say, “I’m not an expert. I’m the translator,” because it is important to me for people to understand that. The book is definitely written in a way where that’s clear, where I’m saying, “I’m relying on all of these super-smart people.” I’m also young. I’m 29. I’ve had pretty much just a bull market, so I needed people who had experienced a lot more of the ups and downs to weigh in, as opposed to, “It’s been great for a while! Why don’t you join me?”

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