Your 20s: See How Your Wealth Measures Up

© Liz Pulliam Weston, MSN Money, www.msn.com

Older folks who are nostalgic about their 20s often forget, or gloss over, how very, very broke many people are at this age:

• The median income for families headed by people aged 20 to 29 was just under $28,000 in 2004, according to Federal Reserve statistics, compared to medians of $48,000 for those in their 30s and nearly $58,000 for those in their 50s. One-third of twentysomethings made $20,000 or less.
• Twentysomethings are more than twice as likely as older folks to have a negative net worth; one out of four families headed by people aged 20 to 29 owe more than they own. The median net worth in this age bracket is just $7,901.
• Thirty percent have education loans. The median amount owed to student lenders was $9,200.
• One out of 10 families headed by twentysomethings are at least 60 days late on a bill. Only folks in their 30s had a higher delinquency rate, with nearly 12 percent 60 days or more late.

•  Thirty-two percent of twentysomething families have no health insurance, putting them at greater risk of catastrophic bills and bankruptcy in case of illness or accident. The proportion of uninsured families drops precipitously with age; 21.4 percent of those in their 30s, 16.8 percent of those in their 40s and 13.4 percent of those in their 50s lack health insurance.

Get your act together now

But there is also good news if you're in your 20s: Time really and truly is on your side. If you get your act together now, you can achieve financial independence decades ahead of your peers who keep muddling from paycheck to paycheck.

Consider this: Someone who puts $4,000 a year into retirement accounts starting at 22 can have $1 million by age 62, assuming eight percent average annual returns. Wait 10 years to start contributions, and you'd have to put in more than twice as much – $8,800 a year – to reach the same goal.

How you measure up:    
 

What you have                                      

Median net worth                                             
Median net worth of top 25%                               
Median net worth of top 10%                              
Median income                                                  
Life expectancy                                                 
Children in household                                        
Homeownership                                   
Median value of home                          
Own a car or cars                                
Median value of vehicle(s)                    

What you owe

Households with debt                            
Median total debt                                  
% carrying credit card debt                   
Median balance                                    
% carrying student loans                       
Median amount owed                           
Percentage carrying installment loans   
Median amount owed                           
Percentage with a mortgage                 
Median amount owed                           

Households on the edge

Negative net worth                               
60 days late on a bill                             
Owe $10K or more on credit cards        
No health insurance                              

Your future

Households with a pension                    
401(k) or IRA                                      
Median value of accounts
 

$7,901
$36,000
$119,300
$27,726
78.2 years
40.20%
30.50%
$124,000
81.40%
$11,000

76.00%
$20,800
46.60%
$1,400
30.20%
$9,200
57.60%
$12,000
27.50%       
$97,000

24.70%
10.00%
3.60%
31.80%

8.40%
31.50%
$7,300
 

As you sketch out your financial plan for your 20s, consider this advice:

Live cheaply as long as you can. Newly-minted adults tend to overestimate how far their paychecks will go and blow too much on apartments, cars, wardrobes, eating out and all the other trappings of grown-up life. A smarter approach: keep living like a broke college student for a few more years. You'll get a better handle on what you can really afford and be able to free up more money for real adult goals, like retirement and health insurance. Speaking of which . . .

Get health insurance. You're one accident or illness away from financial disaster if you don't have coverage. If your employer doesn't offer insurance, try to buy an individual policy. Opting for a high deductible can keep the monthly premium down but still offer you protection from catastrophic medical bills.

Shovel money into your retirement funds. If your employer offers a 401(k) or other retirement plan, sign up for it and contribute as much as you can. If not, start contributing to a traditional or Roth IRA. Aim to put aside 10-15 percent of your gross pay. Contributing every dime you can now will give you flexibility when you're older, either to retire early or to cut back your contributions so you can cover other expenses (like future children's college educations) without derailing your retirement plans completely.

Take a chance. You're young, so you have decades to ride out the stock market's ups and downs. Consider putting 80 percent or more of your retirement funds into stocks or stock mutual funds to take full advantage of their potential for growth. If investing baffles you, consider opting for a "lifestyle" or "target maturity" fund: You pick a target retirement date and let experts do the rest.

Be strategic about debt. Pay off those credit cards and resolve not to carry balances in the future, since the interest you pay is just money down the drain. But don't necessarily rush to pay off student loan debt or mortgages, which tend to be relatively cheap and tax-deductible. Instead, make sure you're contributing the maximum to your retirement accounts and have your other financial bases covered before accelerating payments on those debts.

Pay attention to your credit score. Credit scores are the three-digit numbers lenders (and others) use to help gauge your creditworthiness, and they're key to your financial life. You'll pay higher interest rates and have more trouble getting loans if your scores are poor, but bad credit also can cost you jobs, apartments and higher insurance premiums. Pay your bills on time, keep credit card balances low and apply for credit sparingly to keep your scores in good shape.