Financial advice that no longer works

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Advice and parents, an inseparable combo. We turn to our parents when we need guidance or want comfort, the old cosy feeling of home. And when talking about financial choices, it's easy to look at the people who raised you and think that they must have the answer to all your doubts. 

I don't want to sound harsh, but your parents are just older than you, and no, being older doesn't always mean being wiser. This also means that they can't always answer all your questions about how to quit with extra subscriptions or if your weekly avocado toast has a severe impact on your account balance. 

Jokes aside, the world, society and the economy is changing faster and faster. A lot of the advice our parents gave us doesn’t work so well when applied to today's lifestyle. Let's take a moment to analyze the most common ones and try to see them from a new perspective. 

Money spent on education is always a good investment

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Don't get me wrong here: education will probably be the most important investment in your life. But because of that, you must be careful in how you choose to invest this money. 

In the actual job market, it's easier to have a better-paying career in some fields than in others. A graduate in economics or engineering is more likely to see an immediate economic return once they have completed their studies than a person who studied photography or a humanities graduate. With that being said, it doesn't mean you have to give up your dream of becoming a fashion designer to pursue an MBA in economics if that's not what you want to do. But maybe, investing 25k euros in a master’s degree that you're not sure where it will lead might not be the smartest choice, especially if you have to take on debt to pursue your dream.

If you live in Europe, most countries have affordable public universities that offer a really valuable education – in some places like Germany and France, they are even free.  

You could decide to focus your attention on doing several internships while studying in a public university. This will allow you to gather more work experience in the field of your interest while studying for your specialization. It's cheaper than getting a master’s degree in a private university, plus you should also be able to get a monthly allowance for your expenses, which doesn't hurt. Even in careers where it's notoriously harder to get your first job, the chances increase tremendously when you manage to accumulate real-life work experience outside of the academic walls. You could also decide to put your specialization on hold and take one year to do a couple of well-structured internships after your bachelor. At the end of the year, you would have a clearer picture in your mind and know if a master's degree is the right choice for you, and your CV will look much fuller. 

Saved money is safe money

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My mom used to say to me that it’s important to save at least 15% of your monthly income, though 20% is better. The rest was spendable and usable for your daily expenses and all the extra you needed. She was right about the general concept of saving, but it may be better to avoid using a saving account to do so. 

Nowadays, savings accounts are just bad. They are not intended for accumulating high returns on the money you put into them. The main disadvantage of savings accounts is that the interest rate they offer is so low that the risk of inflation eating away the value of your deposit is just too high. 

Just a little comparison: in the early 1980s, it wouldn’t have been unusual to open a savings account with interest rates as high as 16%. 

Today, in the first months of 2021, the inflation rate in Italy increased by +1.2%, while the average interest rate charged on deposits (current accounts, savings deposits and certificates of deposit) is only 0.33%. With these numbers, the money you put in your savings account a year ago is already worth less, and the value will be even lower next year. Maybe it's time to consider an alternative. 

If a savings account is not a real option, what else can you do? If you have been reading us for a while, you know the answer: invest your money!

It might be the only way to see your money grow. There is a percentage of risk as part of the deal. Still, it's widely acknowledged that, despite the possibility of a hypothetical market crash, putting your money in the stock market is the best way to see a net return in the long term. Modern times make it easier than ever. There is no need for long queues at the bank; you only need your smartphone and an app like Vivid, which allows you to start investing from €0.01, making it accessible to everyone.

Buy yourself a home

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If you are Italian like me, you have undoubtedly heard this a few too many times. Our parents’ and grandparents’ dream was to buy their home as soon as possible and retire in peace, without the hassle of paying rent. But in modern times, housing has become an incredibly expensive asset. The actual job market strongly diminished our possibilities to choose where to live, and it's pretty common for the newer generations to move from city to city every two or three years while trying to find the best way to manage their careers. At the same time, the housing market exploded, and prices are definitely not the same as our parents were used to. Just to give you an example, my mum bought her first two-bedroom apartment in the suburbs of Milan in 1979 – she was 24 – for the price of €12,000, which in today's money would be more or less equal to €75,000. Nowadays in Milan you can barely get a garage for that money. 

Before embarking on the gigantic task of getting a mortgage, consider whether you are in a city where you will be staying for more than 2/3 years. Will you be able to cope with the cost of a monthly mortgage? And the condo expenses? And what about the maintenance? All these elements are usually included in the rent, but you will be in charge of the payments if you own a property. Also, consider whether there are any special rent freeze laws in the state you're considering buying. Sometimes, you may find yourself paying more in mortgage than what you would have paid as rent because of these laws. This will also reflect what you could charge to a hypothetical tenant if you decide to move and rent your flat to someone else. I'm not saying "don't invest in real estate"; I'm just suggesting to take all these elements into consideration before rushing into buying a property that you might be forced to leave in a couple of years.