Being `cheap' pays off for many young adults

Your Money

October 08, 2006|By Jamie Malernee | Jamie Malernee,South Florida Sun-Sentinel

She grocery shops with coupons, doesn't have cable TV and wore the same pair of sneakers for eight years. And when she finishes graduate school, she'll have no debt.

He owned his first stock at 12, invested in real estate before the boom and contributes the maximum amount he can to his individual retirement account. As a result, at 28, he owns five pieces of property and isn't worried about retirement.

They are members of an age group often derided for maxing out credit cards and spending an entire paycheck on a Coach handbag or the latest plasma TV, despite having huge student loans and savings accounts so empty they echo.

Foreseeing a murky future of stagnant salaries, soaring housing costs and vanishing retirement benefits, some young adults are working hard to avoid the financial fiasco so many in their generation are sliding into. Some are doing it the old-fashioned way, socking away a dollar at a time and proudly labeling themselves "cheap."

"My brother always made fun of my 1995 Nissan Sentra. He'd be laughing, but I didn't care how cool it was or wasn't. What was cool was I didn't have to make payments," said LaChish Rigg, 26, a coupon-clipping Pompano Beach, Fla., graduate student who has scrimped and worked through school to avoid student loans.

Others are getting aggressive with stocks and real estate, turning impressive profits at tender ages.

"Anyone that does their homework who is our age realizes, with all the taxes we're paying, there's not going to be any [Social Security]," said Brendan Lynch, 28, a Lake Worth, Fla., insurance agent who co-owns two commercial warehouses and three houses. He plans on using his investments to pay for retirement.

A recent survey by Diversified Investment Advisors Inc. shows that 62 percent of those between ages 18 and 26 believe Social Security will not be around when they retire.

Scott Coopersmith, the firm's vice president for participant communication, said that turning this widespread "concern" into action - getting young adults to save and put money into a 401(k) plan - is difficult.

Heads of households under 35 have a median of only $1,900 in their checking and savings accounts, according to the latest Federal Reserve data. Financial planners often recommend that people should save roughly 10 percent of their annual salary.

Where does the rest of the money go? The average 25- to 34-year-old spends 25 cents out of every dollar earned on debt payments, according to Demos, a New York policy research group that advocates for expanding economic opportunities and reducing poverty.

One promising tidbit: Some money is increasingly put toward a mortgage. Homeownership is up slightly among young buyers - from 19 percent in 1982 to almost 25 percent in 2006 for those younger than 25, and from 39 percent to 41 percent for those 25 to 29 - according to Census Bureau figures.

Rebekka Garvey, a Davie, Fla., software trainer, is one of those homeowners. She grew up poor and still remembers a landlord threatening to throw her family out in the street. As a child, she vowed she would own property.

Now 28, she owns a condo, makes a monthly budget, saves regularly, drives an old car, tithes to her church, and seldom eats out. But she learned this restraint the hard way, after amassing thousands of dollars in debt while attending Nova Southeastern University in Fort Lauderdale, Fla.

"I had credit cards maxed out. I had people calling the house. I had a car repossessed," she said. "For our generation ... everything around us looks like it's easy to obtain and we want it, too."

To get out of debt three years ago, she said she worked two jobs, took the bus, got rid of her cell phone, and put nearly all of her income toward paying creditors. These days, she's less strict, but still vigilant.

"I want to buy more units and some day own my own building," she said.

Pamela Peterson Drake, director of the school of finance for Florida Atlantic University in Boca Raton and Port St. Lucie, Fla., said most people learn about money and investing this way - through their own mistakes. Drake said the university has tried offering personal finance courses, but few students sign up.

Drake's favorite real-life exercise is to have students calculate the cost of credit card or pawnshop loans.

"When they look at those numbers, they are in shock," she said. "They can't believe it's 600 percent a year."

Karry Perl, 35, a wealth manager from Palm Beach Gardens, Fla., thinks parents need to teach their children about money early on. He said many of his baby boomer clients are extremely wealthy and self-made who are best described as "humble" and "savers."

Perl, who was raised in a modest home and now enjoys considerable success, plans to avoid doing the same with his three children. Although his eldest daughter is only 6, she already receives an allowance. And when his kids are old enough, he plans to teach them about credit cards by creating an imaginary one for them to use.

"I'll be the credit card. I'll charge the interest, and ... if they don't make payments, I'll walk into their room and take it from their piggy bank," he said.

Jamie Malernee writes for the South Florida Sun-Sentinel in Fort Lauderdale.

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