Yesterday my daughter and three of her friends were visiting our home. All four had graduated college last June and all are fortunate to have jobs.
These young adults were all concerned about the economy, and asked me what I thought they should be doing by way of saving or investing. They had all heard the usual advice. But, they were smart enough to know that much of the "tried and true" was in question right now.
"My older brother told me that I should put everything I can into my 401(k)," said one of the young adults. "Well," I said, "that is certainly the standard Suze Orman type advice. But the fact is that anyone who followed that advice in the last five years is probably pretty upset right now."
"My college professor said buy a condominium or house as soon as I could," said another. "Also, historically good advice," I replied as I grimaced and thought about the homeowners who had bought at the peak (2003 - 2006) and are now down about a third (and in some cases underwater).
"What about a savings account?" asked a third. "Well, you can't go wrong with lots of savings," I dutifully replied, "although interest rates on these accounts are pretty low right now."
OK, big shot, I said to myself. It's easy to pooh-pooh. So what do you recommend?
And here is what I concluded:
That young people should not invest in stocks, real estate or even savings beyond a reasonable safety cushion. They should invest in themselves.
They should use any disposable funds to build their expertise and experience. Make themselves the most marketable commodity they can. Take night classes. Go to seminars. Learn skills that add value to their #1 asset - themselves.
If we have learned anything from this meltdown, we have learned that no one can rely on a job. Longevity means nothing (and may be a negative). Employer loyalty? Get real. The only thing that matters (and perhaps should matter) is what you (or I) can do for our bosses, our clients or our patients. To the extent we have a breadth and depth of skills that can help people with their needs or wants, we have economic value.
In my judgment, young people should put all the disposable resources (beyond some reasonable reserve of savings) into building their knowledge, skills and network (hugely important). Perhaps even consider starting a business. Because in the end, it won't be the stock or bond market, or the real estate market, which secures their future - it will be their own value proposition - what their human capital is worth in a demanding and quickly-changing world.