Why Millennials Need to Build Good Financial Habits

If you're a millennial fighting to lay down a financial cushion for yourself, or even some form of financial security, there's good news and bad news. I like to start with the bad news so there's always a happy ending.

Experian reported that millennials have the worst credit rating of any generation. That certainly has something to do with their youth, but has much more to do with their financial habits.

YOLO (you only live once) plus FOMO (fear of missing out) equals retail therapy. The AICPA found that two-thirds of millennials chalked up their lack of savings to a habit of impulse buying. What's more, 84 percent said their current salary prevents them from saving more and 62 percent don't have a personal budget.

The High Cost of Impulse Buying

The result is that 44 percent couldn't pay their credit card balances in the last month or had to borrow money from friends and family. The Consumer Financial Protection Bureau found that 11 percent of millennials overdraft their checking accounts nearly once a month.

Most of those overdrafts were for charges of $24 or less at a median fee of $34 each time. They estimated that means that millennials are getting short-term loans from their banks at approximately 17 percent APR. It's nice to be generous with banks, but that sort of thinking about money is unsustainable.

A Little Too Much Optimism

I think the most troubling aspect of the average millennial relationship with their finances is their undying optimism, which sometimes dips into delusion. A study by Northwestern Mutual Insurance reported that a third of millennials worry about money every day or even every hour.

About 45 percent say that "unexpected expenses" are the main cause of their problems, which clearly suggests a lack of adequate planning. Even though 40 percent say they know that a lack of planning exposes them to an uncertain financial future, they're staying positive about it. A full 86 percent are confident that they will achieve their financial goals. However, while confidence is one thing, proficiency is another.

W.A.T.C.H.

Now the promised good news. Building good financial habits is a skill and, like any other skill, it requires both instruction and practice. Your personality and what you've done in the past doesn't matter when it comes to being good with money. It's a matter of thinking about your priorities every day, adding in an additional review before pushing your card into the chip reader and having a goal that matters enough that it motivates you to delay gratification.

There's an ancient saying that thoughts become words become actions become habits become character. Rearrange the first letters in that chain and you form the acronym W.A.T.C.H. In other words, watch your thoughts because they lead directly to shaping your character. The idea has been expressed in many different ways and not even the Quote Investigator can track down its origin definitively.

Although millennials tend to be understandably wary of financial advisors, here is the No. 1 best place to start with a self-directed exercise that will help you bulk up on financial health:

Know the difference between credit and debt. Both are financial tools that you will need at different times in your life, but debt is often corrosive unless it's managed carefully. Only a third of millennials own credit cards, primarily due fear of debt, and lack of credit is limiting their financial options.