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Older folks who are nostalgic about their 20s often forget, or gloss over, how very, very broke many people are at this age:
- The median income for families headed by people aged 20 to 29 was just under $28,000 in 2004, according to Federal Reserve statistics, compared to medians of $48,000 for those in their 30s and nearly $58,000 for those in their 50s. One-third of twentysomethings made $20,000 or less.
- Twentysomethings were more than twice as likely as older folks to have a negative net worth; one out of four families headed by people aged 20 to 29 owed more than they owned. The median net worth in this age bracket was just $7,901.
- Thirty percent had education loans. The median amount owed to student lenders was $9,200.
- One out of 10 families headed by twentysomethings was at least 60 days late on a bill. Only folks in their 30s had a higher delinquency rate, with nearly 12% 60 days or more late.
- Thirty-two percent of twentysomething families had no health insurance, putting them at greater risk of catastrophic bills and bankruptcy in case of illness or accident. The proportion of uninsured families drops precipitously with age; 21.4% of those in their 30s, 16.8% of those in their 40s and 13.4% of those in their 50s lack health insurance.
Get your act together now
But there is also good news if you're in your 20s: Time really and truly is on your side. If you get your act together now, you can achieve financial independence decades ahead of your peers who keep muddling from paycheck to paycheck.Consider this: Someone who puts $4,000 a year into retirement accounts starting at 22 can have $1 million by age 62, assuming 8% average annual returns. Wait 10 years to start contributions, and you'd have to put in more than twice as much -- $8,800 a year -- to reach the same goal.
| How you measure up | ||
|---|---|---|
| What you have | Age 20-29 | Read more |
| Median net worth | $7,901 | Your free financial report card |
| Median net worth of top 25% | $36,000 | 5 lessons the rich can teach you |
| Median net worth of top 10% | $119,300 | So you want to be a millionaire |
| Median income | $27,726 | Live well without busting your budget |
| Life expectancy* | 58.2 years | Insure Your Life Decision Center |
| Children in household | 40.20% | Raise Kids Decision Center |
| Homeownership | 30.50% | Home Buying Guide |
| Median value of home | $124,000 | Home equity calculator |
| Own a car or cars | 81.40% | Buy a Car Decision Center |
| Median value of vehicle(s) | $11,000 | Insure Your Car Decision Center |
| What you owe | ||
| Households with debt | 76.00% | Debt Evaluator |
| Median total debt | $20,800 | Your Credit Rating Decision Center |
| % carrying credit card debt | 46.60% | Credit Card Smarts Decision Center |
| Median balance | $1,400 | Debt Consolidation Calculator |
| % carrying student loans | 30.20% | Saving for College Decision Center |
| Median amount owed | $9,200 | Cut College Costs Decision Center |
| % carrying installment loans | 57.60% | Manage Debt Decision Center |
| Median amount owed | $12,000 | A survival guide for new grads |
| % with a mortgage | 27.50% | Home Financing Guide |
| Median amount owed | $97,000 | Insure Your Home Decision Center |
| Households on the edge | ||
| Negative net worth | 24.70% | Learn to Budget Decision Center |
| 60 days late on a bill | 10.00% | How not to pay your bills |
| Owe $10K or more on credit cards | 3.60% | Big debts, paid off fast |
| No health insurance | 31.80% | A guide for the uninsured |
| Your future | ||
| Households with a pension | 8.40% | Create a Plan Decision Center |
| 401(k) or IRA | 31.50% | A Beginner's Guide to Investing |
| Median value of accounts | $7,300 | Retirement Planner |
| 401(k) or IRA | 31.50% | A Beginner's Guide to Investing |
| Median value of accounts | $7,300 | Retirement Planner |
*From age 20
As you sketch out your financial plan for your 20s, consider this advice:
Live cheaply as long as you can.Newly minted adults tend to overestimate how far their paychecks will go and blow too much on apartments, cars, wardrobes, eating out and all the other trappings of grown-up life. A smarter approach: keep living like a broke college student for a few more years. You'll get a better handle on what you can really afford and be able to free up more money for real adult goals, like retirement and health insurance. Speaking of which . . .
Get health insurance. You're one accident or illness away from financial disaster if you don't have coverage. If your employer doesn't offer insurance, try to buy an individual policy. Opting for a high deductible can keep the monthly premium down but still offer you protection from catastrophic medical bills.
Shovel money into your retirement funds.If your employer offers a 401(k) or other retirement plan, sign up for it and contribute as much as you can. If not, start contributing to a traditional or Roth IRA. Aim to put aside 10% to 15% of your gross pay. Contributing every dime you can now will give you flexibility when you're older, either to retire early or to cut back your contributions so you can cover other expenses (like future children's college educations) without derailing your retirement plans completely.
Take a chance.You're young, so you have decades to ride out the stock market's ups and downs. Consider putting 80% or more of your retirement funds into stocks or stock mutual funds to take full advantage of their potential for growth. If investing baffles you, consider opting for a "lifestyle" or "target maturity" fund: You pick a target retirement date and let experts do the rest.
Pay attention to your credit score.Credit scores are the three-digit numbers lenders (and others) use to help gauge your creditworthiness, and they're key to your financial life. You'll pay higher interest rates and have more trouble getting loans if your scores are poor, but bad credit also can cost you jobs, apartments and higher insurance premiums. Pay your bills on time, keep credit card balances low and apply for credit sparingly to keep your scores in good shape.
Liz Pulliam Weston's new book, "Easy Money: How to Simplify Your Finances and Get What You Want Out of Life," is now available. Columns by Weston, the Web's most-read personal-finance writer and winner of the 2007 Clarion Award for online journalism, appear every Monday and Thursday, exclusively on MSN Money. She also answers reader questions on the Your Money message board.
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