Risk Averse Youth?

rnTypically when you think of the advice most suitable for individuals in their twenties it is words of caution. Be careful with your money, don’t get yourself into too much debt, you are not invincible, sky diving may not be the best idea etc. So it may surprise you to find that the youngest generation to enter the workforce is probably the most risk averse, even more so than senior citizens. This trend probably could have been predicted. Consider the state of this nation’s economy over the past five years or so. Just as this generation was learning about the economy and finance they were witnessing utter disaster. Moreover many of them watched as their parents retirement plans were shredded to pieces and as their real estate investments became huge liabilities. It is no wonder they don’t want to put their money in stocks and real estate to that generation that is a huge gamble that can have horrible consequences. Just as many survivors of the Great Depression don’t trust the bank, those who have grown up in this most recent recession don’t trust the market. That being said, being completely risk averse is in no way an entirely safe way to manage your finances. Young investors don’t have the experience to have seen that the economy goes through cycles. They don’t have the wisdom of investing in the long term, mainly because they have not seen that strategy pay off. They are thus avoiding higher risk investments entirely. Young workers are also concerned with having emergency cash. For most young workers it took a very long time to land a job. They also know that they are at high risk of being laid as it it likely that many of their friends have been fired. There really isn’t the job security available that there used to be. Most young employees view their career as highly vulnerable to change and they are thus focusing much more on their back up plan than older generations. Many of them are setting aside a lot of cash in case of a long period of unemployment. This seems like a wise idea but if it is taken too far they’re not capitalizing on their earnings as much as they should be. Financial advisers are urging the youngest generation to be wise with their money. If you hold on to too much cash you run the risk of not having enough later on. People need to consider the impact of inflation and taxes. If your money is not gaining interest than you are likely going to fall victim of inflation. There are many mixed packages out there that can allow you to be safe with your money while still investing it. If you are a parent or grandparent you can play a part in encouraging your offspring to take necessary financial risks. Still teach them the basics, encourage them to save religiously, live within their means and avoid debt as much as possible. You should also encourage them to invest so as to ensure them a financially secure life. Parents have heavy impacts on their children’s view of financial planning so teach them what you’ve learned. Recognize that they have witnessed a lot of financial hardship so encouraging words may be just what they need to get started on a path of investing. Help them figure out ways to make their money work for them, you have all these years of experience why not help them reap the benefits of your economic and financial wisdom.