Majority of Gen X women in debt, lack investments

by Center for Personal Finance editors

NEW YORK (6/26/06)--A new survey points to a potentially bleak financial future for Generation X women (ages 26-39) due to a lack of basic money management education, high debt, and insufficient investments (PR Newswire June 21).

OppenheimerFunds, Inc., a leading asset manager, released the survey last week. Key findings included:

Two-thirds (67%) of Gen X women admitted to living paycheck to paycheck; More than half (56%) of Gen X men and women carry an outstanding credit card balance of at least $3,000; and Almost two-thirds (62%) of Gen X women said they haven't bought any investment products for either retirement or investing purposes.

High debt and low savings spells trouble for the financial future of Gen Xers. In fact, the survey revealed an interesting twist in priorities. When it comes to buying shoes vs. saving for retirement, more Gen X women said they would accumulate 30 pairs of shoes (45%) than said they would save $30,000 of retirement assets (30%) (American Banker June 22).

Gen X women want financial security, yet most haven't taken the necessary steps to develop a financial plan to be successful. They lack basic financial knowledge, such as how a mutual fund works, or the type of investment that has had the greatest return over the past three decades. Respondents were asked about the best way to achieve long-term financial security: 28% said certificate of deposit, and 28% said savings account.

With such a long time horizon ahead of them, Gen Xers can afford to take a more aggressive approach to investing and take full advantage of compound interest. People in their early investing years have time to ride out the highs and lows of the market and therefore may want a higher percentage of investments in aggressive growth and growth vehicles.

Other tips for young investors:

Get your financial house in order first. Establish an emergency fund of three to six months' living expenses in a relatively liquid account. Develop a budget, set financial goals, and make sure you have a protection plan in place--health, homeowners, renters, automobile, life, and disability insurance. Reduce credit card debt and related fees and expenses.

Take advantage of 401(k) plans and IRAs. Don't miss out on the company match of your employer-sponsored plan--it's "free" money.

Know your risk tolerance. Determine how much risk volatility you can live with. If you can't sleep at night with the investment mix in your portfolio, make some changes.

Use dollar-cost averaging. Invest a set amount of money systematically over a period of time, rather than all in one lump sum. When the price of a share is down, your money buys more shares, and when the price is up, your money buys fewer shares. This means you're reducing your overall risk from market fluctuations.

Diversify. Choose investment products from a variety of asset classes (stocks, bonds, and cash), from a variety of funds or securities within one asset class (such as stocks from small, medium, large, and international companies), and from a variety of industries (such as health care, technology, and financial services).

Seek help. Find an investment adviser by getting referrals, making calls, and checking references. Meet with the adviser face-to-face and check your comfort level. Ask about professional credentials and affiliations, as well as how the adviser is paid.