Cents and Sensibility Guy Steele

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How you invest may
depend on when you
were born

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Are you a Baby Boomer? Or a Gen Xer? Your age helps determine your tastes in music, food and culture, and your attitudes toward a variety of social and political issues.

And when you're talking about your generation, you also need to be aware that it can influence the way you save and invest.

To understand the financial implications of belonging to a particular age group, consider the following generational characteristics:

Many baby boomers:

>> Have postponed retirement saving well into their 40s and 50s

>> Use their home as their "bank"

>> Have given their childrens college education precedence over saving for retirement

While Gen Xers:

>> Have student loans to repay, along with heavy credit card debt

>> Have little "cash cushion" to fall back on

>> Haven't focused on saving for retirement

Let's take a look at some ways that Gen Xers and baby boomers can address these needs.

If you're a Gen Xer

Pay off those student loans. If you still owe money on your student loans, you're not alone.

Since 1997, the median in undergraduate student loan debt has risen 74 percent, to $16,500, according to the 2002 National Student Loan Survey conducted by Nellie Mae, a national student loan provider.

By paying off your student loans as quickly as possible, you'll free up money for your short- and long-term savings and investment goals.

Avoid the credit card trap. Keep one credit card for emergencies, and pay off your balance each month. Responsible credit card management is a great habit to learn early.

Build a cash cushion. Even if you aren't earning much, strive to put away $50 or $100 a month in a money market account, until you have built a cash cushion of about three to six months' worth of living expenses.

Contribute to your 401(k). Start investing in your 401(k) or other employer-sponsored retirement plan as soon as you can.

If you can't afford to put in the maximum, at least contribute enough to earn the employer match, if one is offered.

If you're a baby boomer

Accelerate retirement savings. If you aren't "maxing out" on your 401(k) and IRA, now is definitely the time to start.

If you haven't saved much for retirement, you may need to weight your retirement plan more heavily toward growth-oriented investments, although you'll still need to feel comfortable with what you're doing, given your individual risk tolerance.

Use home equity wisely. At this stage of your life, you may have built up considerable home equity. If so, you might be tempted to take out a home equity loan to consolidate other debts, make home improvements or accomplish some other goal. Your home equity loan may be tax deductible, and you can probably find a competitive interest rate -- but you'll still want to use this debt wisely. Remember, you're putting your house up as collateral, so you don't want to get in over your head.

Don't bankrupt yourself to pay for college. If you want to help your kids pay for school, try to avoid dipping into your retirement savings.

Instead, consider contributing to a tax-advantaged Section 529 Plan or a Coverdell Education Savings Account.

Also, encourage your child to apply for grants and scholarships. And shop around for good, reasonably priced schools -- they're still out there, if you look for them.

As you can see, you'll need to make different types of financial decisions over time. To make your job easier, consult with a qualified financial professional who understand your individual needs and goals -- and who can help you develop a strategy for each stage of your life.

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See the Columnists section for some past articles.

Guy Steele is a financial planner and head of the Pali Palms office of Edward Jones. Send planning and investing questions to him at 970 N. Kalaheo Ave., Suite C-210, Kailua, Hawaii, 96734, or call 254-0688