Sunday, March 5, 2006; F06
Households headed by someone under age 35 have one big factor in their favor: time. These families and individuals tend to have piddling savings -- a median $14,200 net worth, and only $1,800 in cash savings among those with a bank account.
But because they are young, these numbers don't represent a crisis. Such families may have 30 or more years until retirement, which is plenty of time to accumulate wealth. Many are already doing some of the right things to solidify their finances, such as buying a home; 41.6 percent owned their primary residence in 2004, up from 39.9 percent in 2001.
Financial advisers would counsel the typical young family to start paring expenses now and saving more. That $1,800 in cash savings amounts to less than three weeks of pay for the average young family, leaving them highly vulnerable to financial catastrophe in event of an illness or other setback.
"We find that the younger our clients are, the more invincible they think they are as far as their finances are concerned," said Carolyn Juan, a financial adviser with Axa Advisors LLC. "We recommend three to six months of emergency funds."
Moreover, only 40.2 percent have a retirement account, which is the most tax-efficient vehicle through which to begin preparing for the long run. More young people should take advantage, even if it means having to forgo buying a new car or going out to eat, Juan said.
"A 401(k) is such a wonderful opportunity to save as much as you can during the early years, because later on, when kids do come along, you start having competing expenses," she said.
Young people have significant levels of debt; their debt payments amount to 17.8 percent of their income, compared with 14.4 percent for all families. Financial planners said this figure does not particularly disturb them. It makes sense that young people would have more debts than others, as they have only begun to pay off student loans and home mortgages.
The experts are less thrilled with the composition of young families' debt. Almost half carry a credit card balance with a median $1,500 balance. "It's about good debt versus bad debt," said Bard Malovany, a financial adviser with Sagemark Consulting in Annandale. "Borrowing money for college is a decent investment."
