10 Pieces Of Bad Financial Advice From Parents and Family

When it come to our parents, they can give us a lot of valuable life advice. Unfortunately, when it comes to money and personal finance many of us have received terrible advice from our parents.

It’s okay, many of them don’t know what they don’t know or they’re simply passing on what they’ve learned from who knows where (e.g. the media, their parents/family, other sources they “trust”, etc.).

Regardless, just because they give us advice it doesn’t mean we should act upon it. We must do our due diligence because after all they’re OUR personal finances.

Here is a list of 10 pieces of poor advice that Millennials are receiving from their parents and family:

#1: Investing in the stock market is gambling

Gambling, by definition, is the act of betting or wagering money on games of chance. For example, when you go to the casino each game has very specific odds of winning and they typically aren’t good. The odds favor the house.

When it comes to investing, just because the stock market fluctuates and values CAN go down doesn’t mean it’s gambling. It just means it’s a market. People buy and sell for all kinds of reasons. When people get scared they sell and if enough people sell the prices fall for specific investments. But does this make investing money a form of gambling? Of course not and here’s why.

According to Investopedia, the S&P 500 Index (a largely tracked benchmark for US Stock market performance overall) has returned a historic annualized return of 11.88% since its 1957 inception through the end of 2021.

For long-term investors, this doesn’t sound much like gambling to me but rather a consistent return on money.

#2: Invest your money conservatively (low risk)

This piece of advice likely comes from when our parents or grandparents earned double-digit interest rates on their savings sitting in a bank account in the 80s.

When it comes to risk and investing, there’s two metrics you need to be familiar with: risk tolerance and risk capacity.

Risk tolerance is your ability to stomach the ups and downs of the stock market and your investment portfolio. If your investments decline 30%, how would you feel?

Risk capacity is the risk required in order to meet your financial goals. For example, you may be invested according to a moderate risk tolerance when you would actually need to be invested moderately aggressive in order to meet your financial goal.

It’s also important to understand that risk and return are directly correlated, meaning the more risk you take then the higher the return you should receive and vice versa.

As Millennials, we’re in a position to take the most amount of risk, as we can stomach, in order to meet our financial goals. By not taking risks that we’re comfortable with AND need to be taking, we risk not achieving our financial goals in the desired time frame.

Taking on too little risk usually results in having to work longer, save more money, delay goals, and/or forfeit goals entirely.

#3: Stay at your job for as long as possible

Loyalty at your workplace is a thing of the past. Parents tend to recommend staying at your job for as long as possible because they likely received better benefits from their employer for doing so (e.g. a pension that was calculated using years of service).

However, times have changed and Millennials aren’t seeing the same types of benefits OR the same type of loyalty from their employers.

Currently, the data suggests that employees see their biggest pay increases whenever they switch jobs. This is likely due to hiring budgets being higher than budgets to retain employees.

Switching jobs every 2-3 years can have the ability to increase your lifetime earning significantly AND your wealth subsequently.

Note: You can try to negotiate at your current employer but many employees are finding less resistance and higher pay by switching jobs. Also, there are other factors to take into consideration when it comes to where you should work such as culture, workplace expectations (e.g. hours worked), vertical career progression, and more.

#4: Buy whole life insurance

Parents were probably sold the idea of whole life insurance from their life insurance agent that pitched it to them when you were young. You may hear the following reasons to buy whole life insurance:

“It’s life insurance but with a savings account built in!”

“You can borrow from the policy whenever you need it!”

“You can grow your money without the risk of the stock market. It’s a great investment!”

There’s a better alternative to every statement above. I firmly believe that saving and investing should have no part in life insurance for the majority of people, especially if you’re trying to build wealth.

Whole life insurance is an expensive product that fattens the pockets of insurance agent.

What you likely need is term life insurance while keeping your savings separate in a high-yield savings account or the appropriate investment account.

#5: Buying is better than renting

As you may have noticed, when it comes to personal finance absolutes are a no no. This is because everyone’s finances and circumstances are different. As Tim Maurer says, “Personal finance is more personal than finance.”

Our parents had very different home prospects in early adulthood than you did at the same age. Home prices were much lower, interest rates were higher, and there wasn’t a housing shortage.

Although I don’t believe homes are very good “investments”, they are a pivotal piece of every homeowner’s net worth. This is because buying a home forces us to accumulate an asset, that tends to appreciate, over time that we can’t just sell on a whim.

With that being said, there’s definitely a time and place to buy a home.

For many of us, renting is the best option in our current state of affairs.

Reasons it may be better off renting than buying:

• We’re not sure we’ll be in the same place for 7+ years (this is typically the breakeven point on the initial cost to buy)

• We need time to improve our credit score (our credit score can significantly impact our interest rate and subsequently the amount of interest we pay over the life of the mortgage)

• Buying would consume too much of our cash flow and crowd out other important things (e.g. saving/investing, necessities, etc.)

• We don’t want to , or aren’t ready to, be a homeowner (owning a home is a lot of work and it doesn’t get talked about a lot—maintenance is no joke)

I could probably go on and on but you get the jist.

Buying is not better than renting for everyone across all situations.

Renting is most certainly not “throwing away money”.

There’s a lot of benefit in the flexibility and optionality of renting.

Buying a house is one of the biggest financial decisions that you’ll make. This isn’t to mention the large transactional cost.

#6: Go to college or graduate school no matter the cost

Again, this may have worked decades ago when college graduates could get a livable wage to support a family on. But this makes less and less sense as the costs of higher education continue to soar.

It’s a broken system that’s hamstringing millions of Millennials and the generations following us.

No, it doesn’t make sense to go to college or graduate school no matter the cost. College should be evaluated on a case by case basis with a thorough analysis on the application and job prospects of the said education.

There are too many better alternatives to racking up thousands of dollars of debt just for a “college education”.

Better alternatives for your time and money:

• Start your own business (if it’s a desire)

• Pick up a specialized trade or vocation

• Learn to code (bootcamps exist to teach individuals intensively in a short amount of time)

• Get a job, develop skills, gain experience, and work your way up the company (and keep #3 above in mind)

We live in a day and age that possess countless opportunities to create a living without severely going into debt. You just need to find what works for you.

#7: Follow your passion no matter what

Some of the worst advice that parents can give their kids. I will say as Millennials we grew up in the “feel good” era where everyone gets a participation trophy and is included in everything. We were told that we can do anything and be anything we wanted.

This is a lie.

Following your passion isn’t a surefire way to create a living for yourself. It may for some but they are the exception and not rule. For most, this is unrealistic.

For example, if you try and create a living from a passion and it doesn’t ever materialize then you’ve wasted time, often years, and a lot of money chasing something that was never going to happen.

Instead, focus on something the world needs, something you can be paid for, and something you’re good at (or can get good at). It’s a bonus if you find something that does those three things AND you love to do it (the Japanese call this ikigai).

#8: Save as much cash as you can

Accessible cash is good to an extent, such as an emergency fund or short-term funds earmarked for near-term goals. But holding too much cash is simply a lost opportunity.

Our parents have and had different needs, goals, and risk tolerances than we do. Because of this, their advice is irrelevant. Of course they will want a larger cash position, they have immediate cash needs and less time to recover from market declines. Or like I mentioned above, they USED to get double-digit returns on money sitting in a bank account in the 80s.

You should hold as much cash as your financial plan dictates.

#9: Avoid pay raises or income that puts you into the next tax bracket

This is simply ignorant on how income taxes work. I tell everyone that taxes are a good problem to have because it means that you have the income and assets to warrant said taxes because if you didn’t then you’d be earning way less or have way less.

This doesn’t mean that it doesn’t sting because it definitely does.

Our income tax system is a progressive system. So the more income you make the more tax you will pay. As an individual earns money they work their way through the appropriate marginal tax bracket and pay that tax rate for that pot of money. Your marginal tax bracket is the bracket at which your top most or last dollar earned ends.

Avoiding income that puts you in the next tax bracket is like saying, “I don’t want an additional $0.68 in my pocket because I’ll be paying $0.08 more in federal taxes to the government.”

#10: Only buy things that you can purchase outright

This advice is great and definitely applies to many purchasing decisions but not every financial decision. By only purchasing things that we can buy outright we’re acting our wage and not using consumer debt to fuel out lifestyle.

However, for most individuals there will be some purchases that we’ll want, or need, to be made but can’t be done outright. This can be the purchase of a car, a house, an emergency, and more.

For example, using a mortgage to buy a home is the best hedge against inflation. It allows us to lock-in and buy an appreciating asset at today’s prices without having the full purchase price in hand.

Just like money, debt is a tool that we can use. We just need to use it responsibly and calculate the risks.

Our parents have probably given us a lot of great advice over the years. However, be leery of any financial advice they give you and apply a health skepticism. They likely don’t know what they don’t know, are ignorant, or are a combination.

Again, even if some of this advice worked for them it doesn’t mean it will work for you. Times have changed and things look very different now.

Your best bet is to do your due diligence and find the best financial advice for your situation. This can be through the countless resources or it can be simply hiring a financial advisor that will deliver that advice to you!