Young, Broke, and Optimistic: Are Twentysomethings Too Confident About Their Finances?

Confidence is great for many a thing. Like when you’re working up the nerve to ask the cute person at the bar to dance, or when you’re about to give a speech to a room of your peers. But overconfidence is best avoided, especially when mixed with ignorance (I’m looking at you, Achilles, and your weak heel). Overconfidence when it comes to your finances? REALLY not good.

LearnVest, a financial planning service, conducted a survey with questions related to how a person’s confidence about their finances affects their saving/spending behavior. In answers from 100,000 users, they found a huge discrepancy in the level of financial confidence between the different age brackets.

Twentysomethings have the unabashed mindset of “the world is my oyster.” They’re getting ready to leave college and get into the workplace and MAKE MONEY! And they do. Let’s face it, an entry-level job that pays peanuts seems like big money when compared to whatever retail/fast food-service job you were in before. And, if you’re just receiving your first student loan bill in the mail, saving for retirement can feel like a lifetime away.

Alexa von Tobel, founder and CEO of LearnVest, thinks that’s a huge problem. “…people in their twenties feel like they have a better grasp on their finances than they do and it’s because of an enormous financial literacy problem.”

See that dip in the middle of the chart? Those are the ages when people typically start having babies and buying houses. They’re accruing more debt and expenses but usually not seeing a huge increase in income, which means their confidence in their financial future begins to slip. This curve of financial confidence seems to repeat from generation to generation, in all income brackets.

What does that say about Millennials and generations to follow? While Millenials are not saving less than previous generations, longer lifespans and more potential financial burdens may be setting up this generation for a not-so-rosy financial outlook. Add the fact that more and more students are graduating with a mountain of school loans to pay back and you wonder how exactly are they supposed to save money or start a 401(k)?

Von Tobel says teaching financial literacy is definitely a step in the right direction. If you don’t know what a Roth IRA or 401(k) does, why would you throw money at it? Companies like LearnVest are trying to guide and teach users of all age groups about the financial terms and programs they need to be aware of. Others say to start saving by 25 so you’re not destitute at 65, don’t make early withdrawals from your 401(k), and select low-cost investments.

Of course, on paper (or computer screen), all of these goals sound possible to achieve. The problem is implementing them and keeping life from getting in the way. Start by arming yourself with knowledge. And trade confidence for cautious optimism.