So, let's talk about the beginning. Let's talk about the 20s, early on in your financial journey. What I think is amazing, Brian, is that we talk all the time about how compound interest can be the eighth wonder of the world. It can be your greatest ally when it comes to wealth building, but it can also be your fiercest adversary if you turn it the other way. If you let it start working against you. And in your 20s, I think it's when people first interact with debt for the very first time. Yeah, if we talk about Gen Z, that's the folks that are 18 to 26. This is your launch point. If you think about why do I walk around with this koozie, that this one-dollar beer could cost you 88? Or talk about the money multiplier, go to moneyguy.com/resources
, guys. You are at the point where even if you have a little, a little goes a long way. With just a little bit of today and discipline, it's because time is going to make that thing grow and work for you. And that's the part I worry about – that people actually don't understand the power of compounding. If they did, they wouldn't spend the way they do. Because these credit card companies, when we talk about making 10% on our investments or 9% on our investments, you guys will be like, "What are you talking about? That sounds crazy." Meanwhile, credit card companies and other debt instruments are charging you over 20%. So, we've got to talk about how we get this under control so you can make that decision point to use and harness money for you, not against you. So, let's talk about what the average Gen Z looks like. We're going to go through the different types of debt that they have and what their current balances are. So, if you fall into that demographic, you can say, "Okay, where am I at relative to that?" Well, if we look at student loan debt, we know that student loans are an issue in this country, for sure. The average student loan debt for Gen Zers right now, for all that have student loan debt (this does not include the zeros), is about fifteen thousand five hundred dollars outstanding. The average auto debt for a Gen Zer right now is just under twenty thousand dollars of automobile debt. The average mortgage debt is about a hundred and ninety-six thousand for Gen Zers that have a mortgage. And the average credit card debt for Gen Zers right now is a little under twenty-eight hundred dollars. So, when you factor in these folks that carry debt and then you look at the entire Gen Z as a population, including those that have no debt at all, the total average debt for Gen Zers is a little over sixteen thousand dollars. All this data was compiled from Credit Karma. I think they have access to something like eighty million credit reports. So, there's a wide swath of people. The status coming from – what are your thoughts on that, Brian? Good, bad, ugly? Not good. Well, I think it's definitely – I'm surprised because remember we're talking about Gen Z, so this is 18 to 26. So, these people haven't even had that much time to build financial history, so to have this level of debt already is kind of scary. So, we probably ought to talk about, hey, let's jump right into the pitfalls and kind of talk about the better way. You say there's a better way to do money. Let's actually talk about a better way for each one of these categories. So, the first thing that we mentioned is student loan debt, right? And we know that it's difficult. It is hard right now, and the educational environment is different now, perhaps, than it was 20, 30, even 40 years ago. So, the question becomes: if I am going to take on student loans, is there a better way to do it? Is there something that I ought to know about how to navigate making these decisions in a wise manner? Yeah, the biggest thing is, we always talk about beginning with the end in mind. And the fact that if you're in college or you have children that are approaching college age, go ahead and start doing the research to know: what is this degree going to pay me? Because our guidance is: you really don't want your student loan debt to exceed what that first-year income is going to be. Because a big risk that we run these days, especially with interest rates going up and stuff, is: are you going to be able to service the debt with the income you'll make? Because that's what education is supposed to be. It's to better yourself, to increase how big your shovel of income can be on building your wealth, on enjoying life. And if you are strapping yourself with too much debt that cannot be serviced with the income that that education could provide, we've got a problem or a broken part of the equation. And so, I think if you can make that decision right on the front end, you're going to set yourself up for success. But a lot of folks say, "Man, I just found this show. I just stumbled onto The Money Guy. And you know what? I wish I would have known this when I was 16, 17, 18 years old, thinking about going into college, thinking about choosing my major, thinking about figuring my student loan debt. But here I stand today, and I'm trying to figure out, okay, well, how do I navigate paying it off? What are some things that I should think about?" Well, we have a Money Guy rule. We think that's very helpful when it comes to student loans. If you think about the equity risk premium or basically the opportunity cost of your dollars and I'm trying to decide, should I prioritize paying off my student loans or should I prioritize other parts of the financial order of operation? Should I prioritize putting my dollars to work? How do I decide that? Well, we've done tons of research and using historical equity risk premiums, we've come up with this rule of thumb that if you're someone in your 20s and your student loan interest is above six percent, you may want to prioritize paying off the student loans. If you're someone in your 30s and your student loan interest is about five percent, you may want to prioritize paying off your student loans. In your 40s, that number drops to four percent. By the time you get to your 50s, we don't want you to have loan debt anymore. We don't want that to be something that's on your financial balance sheet. So, you've got to get out of that student loan now. We'll talk more about that as we work through the decades. Yeah, what I love about the financial order of operations but is if somebody had the Federal loans that are right around 4.99 right now, you can see if you're in your 20s, you're going to be making sure your deductibles are covered. You gotta make sure you're getting your employer match. You're going to be making sure your high-interest debt, primarily credit cards and things like that. But that doesn't mean that if you have a 4.99% Federal Loan in your 20s, you should overlook past the emergency reserves, your Roth IRAs, or other wealth-building opportunities. But if you do have some loans, because I had somebody come to me, it was probably in the last two years, that had a private loan that was at 6.75% percent. When you get into that level of interest rate, it is getting hard to say, 'Man, let's start prioritizing paying this down.' That's why I love if you are right now at that point where you're trying to figure out, 'Hey, what do I do with my next dollar?' Is it an instruction manual? Go take advantage of our free resource, go to moneyguy.com/resources
on YouTube. You can download our nine steps with the financial order of operations
. Alright, Brad. So now let's talk about the next one. Let's talk about auto loans. Because again, and this one, you know I have a little pie in my face on this because I did this, right? I made this mistake. A lot of folks in their 20s, we finally graduate, we get our first job, we get our first salary, and now all of a sudden we think we need to look the part. We think that, 'Okay, I need to go out and buy that fancy car. I need to establish myself. I need to look like
a professional now.' But unfortunately, that may not be the best decision because I think you are the one that says this, Brian, when it comes to cars, where you start matters because most folks, generally speaking, they tend to increase as they go through time. Well, if you start at the top of the food chain and then leave a whole lot of places to go, well, I think about all 20-somethings. We all, especially all you financial mutants, a lot of you guys going through life and maybe you come from humble beginnings and you're just, it's just human nature, and I think it's built into us from a survival standpoint: how do we make ourselves stand out from the pack so that we're not overlooked and so forth? So we have all these pure, pure, pure, you know, pressure issues. I've seen so many people because it's more than likely in your 20s, it's hard to buy a house. So, you can't get yourself in trouble with that. You're going to get yourself stuck on retail purchases like your clothing, where you're going out to eat, and then the big one is the auto loans. It's because a lot of you, I've seen very smart people come out and they get their first job and they say, 'You know what, this is going to allow me. I'm used to living off the twenty dollars, you know, or thirty dollars, forty dollars a week. Now I'm going to be making a thousand dollars a month. I can go do this.' And you go buy a car because you think your friends, you think, whatever, uh, whoever you're trying to attract, is going to be impressed. Guys, do not fall in this trap. Let me tell you, being wealthy is so much better than looking rich. So do not think that this is going to work. And I'll go ahead and ruin it for you: your future self will be much happier if you're driving around in a Honda Civic or a Toyota Corolla than you're then going ahead and upgrading to that fancy car way too early in the process. And so maybe you're trying to figure out, 'Okay, how do I do this? What's the right way to do this if I want, if I'm going to buy a new car?' I would encourage you to go out to moneyguide.com/resources, and we actually have a car-buying checklist that will walk you through the things to think about before you buy your next automobile. So, if you can follow our rules of thumb and if you can check through the checklist, you're likely going to set yourself up for future financial success so that you don't fall into that trap of allowing a car to be, like you always say, Napalm for your financial situation. Yeah, and by the way, if you are not investing more than your car payment, what are you doing? I know that Instagram and TikTok and all that has kind of normalized a thousand dollar a month car payment. Do not fall into that trap. I'd much rather you have a great balanced, fulfilled life, driving around in affordable, reliable transportation than being in your early 20s claiming you're a car person and then blowing up any opportunity to build wealth in the future. Okay, Brian. Now, let's talk about the last one. Let's talk about credit cards, right? So, what are the pitfalls to avoiding your credit cards in your 20s? Is credit cards because maybe you've said this, 'Hey, you know, I understand. I've seen people that take vacations because they get points and I can get cash back and I reckon there are all these ways that I can outsmart the financial system by using credit cards. So, in my 20s, I'm going to start doing that right off the bat.' Unfortunately, though, I think a lot of 20-year-olds, even though that may be the idea that they start with, that's not how it actually manifests in practice. Yeah, credit cards are not something you use as a bridge to get you to things earlier than you can actually afford. And I think a lot of people do that. They say, 'Well, you know what? They just thought in their head and they'll be like, you know, I'll get a pay raise coming up or I've got a paycheck coming up in the next two weeks, so I'll go ahead and just use this credit card.' This is a mistake because remember, guys, this is the way we talk about this: credit card use is okay. Yep. But credit card debt? No way. And the reason I say this is because it is a fork in the road moment. I know that your generation, the Gen Zers who are watching this, you are the lowest of all the generations on credit card debt, around right under three thousand dollars. But that's probably just because you haven't had enough time to screw it up. So, I'm telling you right now, do not fake your life by using credit card debt thinking you'll catch up. Because not only do you get caught up on the twenty percent interest rate that is destroying you, turning compound interest upside down, but also, it's keeping you from starting the investment process, whether it's fifty dollars a month, a hundred dollars a month, two hundred dollars a month. You've got to start the process somewhere. And if you were too busy paying the minimum payment on your credit card, you're just, uh, the time is just, you're gonna wake up and you're gonna be five years in the future and go, 'What happened?' And it's going to be because you made a consumption decision. So, credit card debt? No way. Make the decision. Don't get yourself in that trap. So, if you find yourself in that place, if you have credit card debt right now go, pay it off. Go, get rid of it. Stop doing it. If you find that you paid off your credit cards and you were okay for a little while, and then you ran up credit card debt again, maybe stop using credit cards. You may not be a credit card person, and that's okay. Because if you're carrying a balance month to month, you are doing it wrong. Do not fall into that trap. And if you're there right now, fix that before you move forward.