Analysis: KALEMBWE SAKUBITA
WE RARELY look at money using the lenses of our age groups. However, there is need to look at your finances in relation to the stage at which you are in life. There are many common money mistakes people make in their 20s, 30s, 40s and beyond.
Money is a constant throughout our lives, but the role it plays – and our relationship with it – changes as we walk the road of life. At every stage, we face different financial opportunities and challenges. With these, inevitably, comes the danger of making missteps. Sadly, we all stumble financially, often in similar ways.
Here are some of the most common money miscues, and thoughts on how to avoid falling into these generational traps.
In your twenties the main challenge you are likely to face in the management of your money is overcoming fear.
Young people should invest heavily in growth stocks, which carry some risk but offer the potential for big returns over time. Unfortunately, too many current twenty-somethings are too risk-averse to adopt this strategy. Instead, their portfolios are thin on stocks and heavy on assets that offer guaranteed income.
Experts say this risk aversion stems from a lack of financial literacy and a dreadful generational fear of failure. They also believe young people are more skittish because of the unpredictable experiences they have seen in their lifetimes.
One possible way to ease that angst about investing is to start out with investing in mutual funds initially with riskier growth assets and change the asset mix of stocks, bonds and cash equivalents in the portfolio according to a selected time frame that is appropriate for you as an investor so that the asset mix is slowly transitioned over the decades to more cons 30s, you have too much expectation and information. More and more people today are waiting until their 30s to start a family or buy a home. That makes this a frantic time. These young adults too often think they should be living the way their parents did when they were in high school. But it takes time to build that sort of financial comfort. Trying to recreate that ideal life by racking up debt and buying expensive cars, clothes and leading flashy lifestyles will ultimately make it harder to achieve long-term goals. Another common thirty-something mistake is that of making poor investment decisions due to lack of knowledge of the many available options, some of which are complicated.
I call the 40s ‘too, too much’. Midlife brings the biggest expenses of — home ownership, raising children and, perhaps, caring for an ageing parent. These burdens must be properly managed to avoid both short and long-term trouble.
In looking to move from a starter home to the place where they will raise a family, forty-somethings should try not to overspend. They need to ask hard questions about how much space they truly need and whether they really need to be in that trendy neighbourhood, as opposed to the less expensive adjacent community. Ideally, a homebuyer/ builder should be able to pay off/ complete this project by the end of their career. Being mortgage-free in retirement is a huge financial advantage.
College is the single largest child-related expense. Parents need to put this one under the microscope. Does the child really need to attend a four-year private university education to have the career he wants? What are the true benefits of shelling out for a government college instead of attending a good private school?
Children should be required to invest in their education by working hard to qualify for government scholarships and being responsible for some portion of their university expenses.
Anyone who even suspects they may have to support an elderly parent should start those conversations with family early. Be business-like in assessing the parent’s needs and resources. A family member’s elder care contribution should be limited to an amount that will not undermine their own financial stability.
In your fifties it is catching up time.
Many Zambians realise in their 50s that they haven’t saved enough for a retirement that could last more than 30 years. That situation can be complicated by a layoff or the costs associated with a lifestyle built up over the years.
More and more Baby Boomers are turning to entrepreneurship in their 50s, hoping a business will give them the added income they need for retirement.
But that’s a risky proposition with both huge potential upsides and downsides.
The answer for fifty-somethings worried about retirement is simple but hard. They need to prioritise saving. That might mean downsizing a home (and lifestyle) and/or even taking on a side job or consulting work. It might be uncomfortable now, but it beats the nightmare of an under-funded retirement.
In your 60s, 70s, and beyond, you might be failing to ask for help. That is a mistake. There is much truth to the notion tha-t today’s older Zambians are “younger” than previous generations of elderly citizens. But, age inevitably brings some degree of diminishment of the investment abilities of prior years. So, it is important for everyone to have people they can trust to help with financial decisions in their later years. This circle might be made up of family members, financial professionals or a mix of both.
The author is FNB Zambia consumer educator.