DALLAS (TheStreet) -- Millennials, those born between 1980 and 2000, might as well have been born yesterday when it comes to managing their own finances.
While more than half of them say they are either "knowledgeable" or "very knowledgeable," they also admit rookie financial mistakes, according to a new study from Boston-based consulting firm Millennial Branding and millennial-focused online media company Elite Daily.
Only one of five millennials said they don't have student loans, yet nearly two-thirds said that this financial burden doesn't impact their purchasing behavior (they don't know how to prudently budget). Millennials would rather rent a house than buy one and would rather buy a car than rent one, despite the fact that real estate is generally considered a good investment and cars tend to depreciate in value quickly once purchased (they don't know a good investment from a bad one). But it doesn't matter whether they can pick investments or not, because 80% of them use 0% of their income to buy stocks and bonds.
To be sure, the rising generation often will rent rather than buy because of less money saved and lower income, and they will often spend in favor of entertainment over investment, but this generation is different. In 1980, 18% of those aged 18-to-34 (that is, baby boomers) owned a home; today, 13% of those aged 18-to-34 own a home, according to the White House fact sheet on millennials.
The stock and bond markets have long been paths to wealth for Americans, and that won't change with millennials. As a millennial investor myself, I know that it can be intimidating to consider which companies or investment vehicles to use to build your portfolio, but the solution is simple: education.
Millennials need to get more educated about the benefits of prudent financial decisions today. They need to understand that real estate -- for most Americans that means owning a home -- is an investment that has generated an average return of 8.6% from 1978 to 2004. They need to learn that once a new car is driven off the sales lot, it loses on average 19% of its value, according to Edmunds. And perhaps most of all they should be educated about the great performance of the equities markets over the past 50 years.
If a baby boomer born in 1950 started investing just 5% of her income in the stock market in 1970, making the average income at the time of $ 9,350.00 with modest 3.5% raises each year, she could retire today with nearly $720,000 based on the S&P 500's historical performance. The United States equities market has been very lucrative. And that's something that every financially "knowledgeable" millennial should know.
This article is commentary by an independent contributor. At the time of publication, the author held no positions in the stocks mentioned.