Yahoo Finance The rules of money have changed
The Great Depression forced a generation to re-think what they believed were self-evident rules about how to deal with cash and 80 years later that process began again – so what are the new rules of money?
Since this recession hit a few years ago, the financial rules that most Brits operated under have changed, and it might be the fact that Generation Y was in the sweet spot of the economic downturn that has caused them to redefine their beliefs about money.
Putting actual date ranges on the different generations is difficult, but Generation Y, also called the millennial generation or "1980s babies", are said to have birthdates ranging from the 1970s through the mid-to-late 1990s and may number as many as 17 million. If you're in your 20s, 30s or early 40s, then you may be part of Generation Y.
What's more important is your role in the workforce. You're most likely in the early or middle stages of your work life but because of the current recession, you may have had to redefine your rules for money, and if you haven't done so already, then you should.
We have a few rules you should consider as you move forward into unknown financial territory.
Don't count on the degree
Parents once told their children that they had to have a university degree to be successful and in large part, that's still true.
However, a university degree no longer guarantees you success in the workplace, and with the rising costs of university tuition, people are thinking twice before committing to a course.
You can see how the recession has hit graduates, as according to the Office for National Statistics recent graduates are more likely to work in lower skills jobs today than a decade ago.
The percentage of recent graduates employed in lower skilled jobs has increased from around 27% in 2001 to around 36% in the final quarter of 2011.
New rule: do something that you enjoy, but research the job prospects for your field before committing to the degree course.
Be afraid of credit
Credit cards and loans might have become the norm in the last decade, but with jobs scarce and the economy only slowly improving, holding a lot of debt is a dangerous endeavour.
When you take on debt, you're betting on your future ability to pay it and as many households have found, that isn't always possible.
Student loans and easy access to overdrafts and credit cards have seen young people become used to taking on large debts early on – but it limits their ability to manage their finances.
New rule: The old adage to “live within your means” has never been more relevant. Do not rely on your current income level to pay off debts you take on today.
In recent years many have been laid-off, leaving them with no way to pay their debts. Keep debt at a much lower level than in the past.
A home isn't an investment
If you're a property investor purchasing homes at low levels, with plans to rent and later sell the properties, a home is an investment. For those who are purchasing a home as their primary residence, the old idea that a home is not only a place to live but also a money-maker, is no longer true.
Firstly, homeowners generally stay in their homes from five to seven years, which isn't sufficient time for their homes to grow in value. Secondly, the collapse of the housing market has left many homeowners owing more on their home than it is worth. It will take many years for housing values to return to a reasonable level.
New rule: If you purchase a home, don't do it because it's a good investment. Do it for other reasons, like a low interest rate and a great price. Don't count on making money from your home when you move.
Invest early and often
This recession hit the baby boomer generation hard. Many baby boomers believed that they would have enough money to retire, but the stock market collapse and plunging annuity rates took much of that money from them, forcing many boomers to continue working well into their 60s.
There is no risk-free investment, but the best way to protect against losses such as these is to save and invest larger amounts earlier in life. As the balance grows and your portfolio is more diversified, you'll have greater flexibility to handle the ups and downs of the markets.
With almost no private sector final-salary pensions left and even the public sector ones becoming rapidly less generous, it’s more or less your only option if you want a comfortable retirement.
New rule: Think about your retirement plans on the first day of your career and continue investing more than you think you should.
The bottom line
The financial world has changed. The years of prosperity have, at least for the time being, ended. Generation Y may be the first generation who do not have a better quality of life than the generations that have gone before them.
As a result, we've changed how we think about money and that can only be a good thing.
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