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This guest post is from Ted Jenkin, CFP®. Ted is co-CEO of oXYGen Financial and is a top ranked personal finance blogger (www.yoursmartmoneymoves.com). He is a regular contributor to Investment News, The Wall Street Journal, and The Atlanta Journal Constitution. It’s official. For years and years everyone has labeled my generation (Generation X) the slacker generation. We were the ones that really started on the video game revolution with games like Pong and Atari and now we have relegated ourselves to worst in class when it comes to overall debt. Although the average balance on credit cards is neck and neck with baby boomers at $5,343 per card and we don’t carry quite as many credit cards as baby boomers, the average debt for a Gen X’er has soared to over $30,000. The Experian study showed that nationally, the average debt in the United States is $27,887 and the average bankcard balance is $4,501. So, why is such a successful generation getting so deep in debt? What actions can you take today to start improving your situation? There is a reason why Gen X’ers and Millennials are using their credit cards more and falling behind on their payments. I call it lifestyle envy. While social media has become really effective in bringing the world closer together, it has also created a set of unrealistic expectations for my generation based upon last night’s Facebook post. Doesn’t it make you angry that your childhood friends are all taking vacations to paradise whereas you suffer from having to take staycations? Aren’t you frustrated that your co-workers all seem to be driving a Porsche or an Audi and you are stuck rolling around in a 2001 Honda? How is it possible that your neighbor’s kids are having birthday parties like they are rock stars while you are still playing pin the tail on the donkey in your basement? You should learn by reading the study from Experian that although it appears they are living life like they are on an episode of Entourage, the truth of it is that their finances are a sinking ship weighted by an anchor of credit card. All the pictures on Facebook, Instagram, and Pinterest might give you the appearance they are doing well. But that is all smoke and mirrors as these images produce a level of irrationality in our minds when it comes to how we spend our money. The pictures tell us, “If they can do it, surely I can do it as well!” Notice there are no facts about income or net worth on Facebook. Notice that there are no budget numbers shown on Facebook. Since pictures are worth a thousand words, the posts we see night in and night out psychologically work on our brains to make us think we should be spending more than we need to with our credit cards. So, how can you fix your situation? Use these five rules as you manage your personal finances: Adopt The Pay Yourself First Rule – I’ve been doing this personally for 22 years in my own financial plan, and I recommend to save a minimum of 10% off the top before you plan out the rest of your budget. If you can get to 20% to 30% even better, but start at a minimum of 10%. If you try to save money after you spend, it’s likely you’ll have nothing because everyone is after your money. When It Comes To Raises At Work, Use the 1/3rd Rule – Hopefully, if you are between the ages 34 to 48, your income will continue to go up in your peak earning years. It is easy to expand your lifestyle as you make more money. Consider saving just 1/3rd of every new pay raise you get at work whether it be in your 401(k) or personal savings. 1/3rd will go to tax and keep a 1/3rd for fun. Get Down To Two Credit Cards You Use – Once you begin to pay off debt don’t cancel your existing credit cards, just stop using them. I’ve maintained a high credit score over the years by carrying several cards, but being disciplined to using two cards and paying them off all the time. Do you really need five more store cards? Use The Acid Test For Purchases – Before you make a purchase, ask yourself whether or not you need it, you want it, and you can truly afford it? Since the internet has created a wave of ease for our spending compulsions, before you click purchase give it 48 hours and then come back to the website to see if you still really want the merchandise. If You Are Struggling, Go To A Forced Budgeting Site – In the good old days, people used envelopes to sort out the cash from their weekly paychecks for paying bills. Today, there are websites such as www.mvelopes.com that can help you do this electronically as a family. This can be an especially powerful tool for those that lack self-discipline. Remember that sound from Pac-Man when you got caught by one of the Ghosts? If you don’t get your spending under control, that is what your personal financial picture will look and sound like as well. Use these smart money moves to get your debt under control and make your cash work toward making work optional one day soon!
Underscoring Experian’s goal to help consumers and be an advocate for credit education, the National Foundation for Credit Counseling (NFCC) awarded Victor Nichols, CEO of Experian North America, its “Making the Difference” award from their Annual Leaders Conference in Denver. This prestigious award is presented to organizations that have made significant contributions to assisting consumers with financial literacy, awareness and education, furthering the NFCC’s mission, visions and programs through a national presence. To learn more about Experian’s work with the NFCC, check out: Experian honored by the National Foundation for Credit Counseling for its Commitment to Financial Literacy; CEO earns NFCC’s “Making the Difference” Award Experian Provides 80,000 free memberships to the National Foundation for Credit Counseling®, the nation’s largest financial counseling organization
This guest post from Erin Lowry. Erin is the founder of Broke Millennial, where her sarcastic sense of humor entertains and educates her peers about finances. Erin lives and works in New York City, so she's developed quite the knack for finding deals and free events. At the tender age of 18 I opened a letter from my bank to find my first credit card. I peeled the card off the letter and took a moment to stare in awe at this powerful little piece of plastic that suddenly offered me access to money. This was 2007, pre-Credit CARD Act of 2009, when all a college student had to do to get a credit card was head down to the local back — or in some ghastly cases walk through vendor tables set up during orientation days. Students scribbled down their information in exchange for a free t-shirt or water bottle and gleefully received plastic cards that seemingly offered “free money.” After calling to activate my card I suddenly heard my father’s voice in my head, “It’s important you have a credit card. It will help you build credit for life after college, but in order to do so, you must use it responsibly.” “Responsibly” my father had explained, meant never exceeding my credit limit. It required that I pay off my card on time – and in full – each month with no exceptions. It meant not signing up for every credit card deal that would be offered to me, no matter how many frequent flyer miles or ridiculously high limits they tried to lure me in with. Taking his words to heart I used my credit card sparingly my first year in college. Once a month I’d charge an affordable purchase to the card, like filling up my gas tank, and pay it off on time and in full. As the year’s progressed, I became comfortable charging more than $30 or $50 a month – but always ensuring I would be able to pay off the card in full when the bill was due. Unfortunately, plenty of parents, teachers and peers spread myths about credit cards and credit scores. They may suggest carrying a balance, claiming it helps with your credit score. Or conversely, they warn to never get a credit card in college because it’s too tempting to rack up debt. Both schools of thought do a disservice to millennials. Carrying a balance does nothing more than rack up interest. Failure to own a credit card keeps you from developing your credit score. In Experian’s recently published study, millennials need the most guidance when it comes to handling credit. As a generation, we’re not only over-utilizing our credit cards, but more than 50% of us are failing to pay our bills on time. Late payments result in more money owed in interest and lowers credit scores. Instead of creating yet another stereotype about millennials – it’s time to reverse these trends and become a fiscally responsible generation. Credit cards offer a simple solution for building credit and learning to budget your money, but only if you’re using them responsibly. Set reminders for when bills are due. It’s easy — there’s even an app for that. Create a weekly (or monthly) budget and ensure you don’t charge more to your card than is allocated in your budget. And whatever you do, don’t pay off your student loan bills on a credit card. Credit cards don’t create bad habits, lack of awareness about your financial situation creates money problems. When properly utilized, credit cards can help you achieve financial goals — and get you those sweet rewards. Hey, we’re millennials – we all want trophies and rewards for good behavior.
Today, we stand at the forefront of a digital revolution that is reshaping the financial services industry. And, against this backdrop, financial institutions are at vastly different levels of maturity; the world’s biggest banks are managing large-scale infrastructure migrations and making significant investments in AI while regional banks and credit unions are putting plans in place for modernization strategies, and fintechs are purpose-built and cloud native. To explore this more, I recently had the privilege of attending the annual Reuters NEXT live event in New York City. The event gathers globally recognized leaders across business, finance, technology, and government to tackle some of today’s most pressing issues. On the World Stage, I joined Del Irani, a talented anchor and broadcast journalist, to discuss the future of lending and the pivotal role of data and AI in building a more inclusive financial system. Improving financial access Our discussion highlighted the lack of access to traditional financial systems, and the impact it has on nearly 100 million people in North America alone. Globally, the problem affects over one billion people. These people, who are credit invisible, unscoreable, or have subprime credit scores, are unable to secure everyday financial products that many of us take for granted. What many don’t realize is, this is not a fringe subset of the population. Most of us, myself included, know someone who has faced the challenges of financial exclusion. Everyday Americans, including young people who are just starting out, new immigrants and people from diverse communities, often lack access to mainstream financial products. We discussed how traditional lending has a limited view of a consumer. Like looking through a keyhole, the lender’s understanding of the person in view is often incomplete and obstructed. However, with expanded data, technology, and advanced analytics, there is an opportunity to better understand the whole person, and as a result have a more inclusive financial system. At Experian, we have a unique ability to connect the power of traditional credit with alternative data, bringing a more holistic understanding of consumers and their behaviors. We are dedicated to leveraging our rich history in data and our expertise in technology to create the future of credit and ultimately bring financial power to everyone. The future of lending After spending two days with over 700 industry leaders from around the world, one thing is abundantly clear: much like the early days of the internet, today, we are at the cutting-edge of a technical revolution. Reflecting on my time at Reuters NEXT, I am particularly excited by the collective commitment to drive innovative, and smarter ways of working. We are only beginning to scratch the surface of how data and technology can transform financial services, and Experian is positioned to play a significant role. As we look to the future, I am excited about the ways we will create new opportunities for businesses and consumers alike.
We believe that financial literacy leads to empowerment. That is why Experian supports initiatives and partners with community organizations to deliver financial education. We also develop products and services that give more control to consumers over their credit profile and financial health. As part of advancing our mission of Financial Power to All®, we are proud to announce we are helping more than 5,000 Hispanic individuals nationwide by relieving $10 million dollars of consumer debt. To provide families with this boost, we joined forces with ForgiveCo, a Public Benefit Corporation (PBC), to administer the acquisition and cancellation of qualifying consumer debt for the selected recipients. Beneficiaries will also receive a one-year premium Experian membership for free that offers access to their Experian credit report in English and Spanish[i], FICO® Score[ii], bilingual educational content, and other financial resources. We hope this effort helps raise awareness of the importance of financial literacy for everyone, and that Experian has resources to help individuals reach their financial dreams. To amplify the message, we collaborated with multi-platinum, award-winning singer and songwriter Prince Royce and you can see his video here. In fact, we have been making a concerted effort the last several years to evolve our educational resources and products to better support all underserved communities. Some of our other activities include the creation of the B.A.L.L. for Life initiative that connects African American and Hispanic youth with financial education, supporting scholarships for Asian Americans through the Ascend organization, providing custom resources for Out & Equal and Born This Way Foundation for the LGBTQ+ community, supporting the NextGen Innovation Lab for Disability:IN, and sponsoring credit counseling for the military community with Operation HOPE. For resources in Spanish, Experian offers a credit e-book and consumers can access a full suite of articles at the Ask Experian blog here. [i] Only Experian credit reports are available in Spanish. All other services associated with an Experian membership are available in English only. English fluency is required for full access to Experian’s products. [ii] Credit score calculated based on FICO® Score 8 model. Your lender or insurer may use a different FICO® Score than FICO® Score 8, or another type of credit score altogether. Learn more.
Amid some of the financial challenges that underserved communities experience, members across the financial services community remain committed to championing initiatives and programs that drive greater financial inclusion. In fact, collaboration has led to the inclusion of non-debt related payment information on consumers’ credit profiles, as well as digital services that make it easier to manage money. These efforts have helped to broaden access to fair and affordable financial resources for more individuals. While significant progress has been made, there is still more work to do. However, some of the misconceptions and myths about the financial services community are hindering further advancement. Debunking these myths will accelerate progress by building trust between the financial services community and consumers. Person withdrawing money from ATM contactless Myth #1: “Financial institutions have no interest in underserved consumers or credit invisibles.” The truth is, banks and credit unions want to say “yes” to more prospective borrowers, including individuals and families from underserved communities. Beyond being the right thing to do, it’s an opportunity to potentially build lifelong relationships with a relatively untapped market. A show of good faith to communities who have largely been ignored by the financial system could lead to customer loyalty that may extend to their family and friends. That’s why participants across the financial ecosystem have been proponents of including expanded data sources—such as on-time telecom, utility and video streaming service payments—on to consumer credit reports, as well as exploring other Fair Credit Reporting Act (FCRA)-regulated data sources, including payment data on short-term small dollar loans and expanded public records data. Making this data more accessible to lenders provides a more comprehensive view of a consumer’s ability and willingness to repay outstanding debt—an actionable solution to extending credit to consumers without lenders taking on additional risk. Myth #2: “There is a lack of trustworthy financial education resources.” The financial services community and affiliated organizations recognize that empowering people with financial knowledge and skillset are critical to consumers’ financial success. In fact, banks and credit unions are partnering with nonprofits and non-governmental organizations to better understand the unique challenges and opportunities within specific communities and provide relevant tools and resources. For example, Experian’s B.A.L.L. for Life (Be A Legacy Leader) program, launched in partnership with the National Urban League, serves as a catalyst for engaging with Black communities and low-income youth through live events and digital financial education. Subject matter experts, professional athletes, celebrities, and other influencers share their experiences and expertise, covering topics such as banking, credit, financial management and investing. In addition, to help people improve their financial management, Experian partners with the National Foundation for Credit Counseling (NFCC). The NFCC connects consumers with certified financial counselors to help them address various pain points, including debt management, homeownership, student loans or small business cash flow issues. Myth #3: “Underserved communities have few opportunities to build credit and enter the mainstream financial system.” People from underserved communities, as well as younger consumers and recent immigrants are often excluded from the mainstream financial system because they lack an extensive credit history. Historically, it’s created a vicious cycle; in order to get credit, you have to have credit. Fortunately, there has been a sea change in innovative solutions to address the specific needs of these populations. These include new credit scoring models and microfinancing which provide financial services to individuals who may have been excluded from traditional banking systems. In addition, by incorporating expanded data sources, such as telecom, utility and residential rental payments onto credit reports, lenders have more visibility into consumers who may have been excluded by traditional credit scoring methods.These programs help individuals and families from underserved communities establish and build a credit history that could enable loans, or the ability to rent an apartment or open their dream business. An example is Experian Boost®, a free feature that allows Experian members to contribute their history of making utility, cellphone, insurance, residential rent and video streaming service payments directly into their Experian credit profile. By incorporating nontraditional credit data like paying utility bills on time, online banking transactions, rental payments and verified income data, more people can establish a credit profile that can potentially qualify them for a loan. More Inclusion, Fewer Myths It’s encouraging that community organizations and banks are beginning to see the economic and social benefits of aligning on financial literacy and inclusion. As more initiatives come online, underserved populations will be able to establish a better financial foundation. Then, we can declare the myths to be history.