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Dear Millennials, Experiences Are Still Liabilities

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The lessons of "Rich Dad Poor Dad" apply more than ever today

When I wrote "Rich Dad Poor Dad", my audience was a baby boomer one that had a love for buying things: cars, houses, TVs, and more. Some of these things they even were tricked into thinking of as assets. This is why I wrote, "Your house is not an asset."

The millennial generation that is maturing into the young adults of today hold a different ethic. They are more into experiences. As "USA Today" reports, "a recent Harris Group study found 72% Millennials plan to focus on 'experiences rather than physical things' in their future spending."

There is even an air of moral superiority among those that live this way. As Marian Salzman, CEO of Havas PR North America, writes for "Forbes":

"Shop till you drop." "He who dies with the most toys wins." "Greed is good." Those credos seem as dated now as leg warmers and John Hughes films. They seem like relics not just from the '80s but also from an ancient civilization. It's hard to believe that people said them (even ironically) in our lifetime.

Amazing what a difference a generation can make. But this isn't just a generation gap between materialistic baby boomers, nihilistic Gen Xers, and optimistic millennials. It's a shift in cultural values. Capitalism has fundamentally changed, and it isn't going back.

Citing research from her parent company, Havas Worldwide, Salzman writes:

People would rather drop shopping than shop till they drop, and that sharing is good. People have started to think of shopping as a necessary evil. It's something we still have to do, and something we even sometimes (guiltily) enjoy, but most of us no longer brag about it.

We'd rather spend our money on experiences (to quote an industry mantra) and stories we can tell ourselves and others. We're still suffering from the collective debt hangover after the early 2000s (fueled in part by George W. Bush exhorting Americans to shop out of patriotic duty). And, most important, we're mindful of the impact our purchases have on the planet and on other people, and especially on ourselves.

The difference between an asset and a liability

In "Rich Dad Poor Dad", I took pains to simply define the difference between an asset and a liability. An asset is something that puts money in your pocket. A liability is something that takes money out.

For the baby boomer audience I was writing to, I dismantled one of their great myths that a house was an asset by showing through these simple definitions that a house takes money out of your pocket and is therefore a liability. Only if and when you sell it, if you're lucky to have made money, will it become an asset. Many people who lived through the Great Recession and saw their property values drop significantly finally understood.

A hard road to retirement for millennials

My biggest concern for the baby boomers was their ability to live financially free in the future. "Rich Dad Poor Dad" wasn't and isn't a get-rich-quick book. It was a fundamental shift in thinking about money and finances. It was about building a portfolio of cash-flowing assets that would free you up financially and allow for a secure retirement.

Things are hard enough for the baby boomers when it comes to retirement. As the "Miami Herald" reports, "The Insured Retirement Institute released a report that found that just 24 percent of baby boomers are confident they will have enough savings to last throughout their retirement years. Just 55 percent reported having savings for retirement."

Today, for the millennial generation, it appears it's only getting harder. As "USA Today" writes,

Millennials also face a mathematical double whammy of lower lifetime earnings and lower investment returns that will make their challenge even more difficult.

On the income front, consider a Yale economist's study of earnings from college grads, which showed "large, negative wage effects to graduating in a worse economy." In some cases, they saw as much as $100,000 less in cumulative earnings over the next two decades vs. those who graduated into more favorable times. Many Millennials, of course, hit the job market smack dab during the Great Recession.

And on the investing front, consider a recent McKinsey & Co. report titled "Diminishing Returns: Why Investors May Need to Lower Their Expectations." The name says it all, but the gist is that the consulting firm forecast 4.0% to 6.5% returns annually from the stock market across the coming years - down dramatically from the 7% to 10% annual gains common over the past 50 years or so.

The liability disease

At the end of the day, fundamentals are fundamentals, even when they are wrapped in a prettier package. And for all their disdain for their parent's generation when it comes to materialism, the reality is that millennials suffer from the same financial disease: the need to spend, and spend richly, on liabilities.

Simply put, as great as experiences are, they are still liabilities that take money out of your pocket. And if you don't get smart about your money and your financial future, you'll find yourself unable to enjoy those experiences later in life.

So what's a millennial to do?

Securing your financial future isn't about greed

The lessons of "Rich Dad Poor Dad" still apply to this day: increase your financial intelligence, invest in assets that provide cash flow, and enjoy the things you love with that cash flow.

The beautiful opportunity the millennial generation has is to turn their love for experiences into opportunities to grow their financial intelligence and assets. This is not about owning more stuff. It's about securing your financial future to do things you love and be the generous people that you are for the entirety of your life.

Some quick ideas:

  • Turn your trips into opportunities to get to know the local real estate market and identify potential cash-flowing properties
  • Take advantage of sharing economy services like Airbnb and Uber to create income opportunities
  • Form an investing club with your friends and make the idea more appealing by giving it a social-good component such as using part of the funds to support a charity together
  • Find ways to sell the goods you create from your hobbies to fund them and build a business

Each of these ideas could be a post in themselves, but the purpose is simply to get the gears of your mind turning. More than ever, the lessons of "Rich Dad Poor Dad" apply today. You must change the way you view money and investing in order to survive your financial future. Simply buying into the old rules of money like saving, buying a house, investing in a 401(k), and getting a good job won't do the trick. It didn't work for your parents and it won't work for you.

Original publish date: October 18, 2016

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