by Andy Zmuda, director, Asset Development Programs
This article originally appeared in the April edition of our Year of the Family newsletter. To read the newsletter in its entirety, visit our Year of the Family homepage.
You’re anywhere from 18 to 30 years old. You may still be in school or want to return to school. You may be searching for employment or just starting your first full-time job. Regardless of your exact circumstances, chances are these years of your life are full of “firsts” from a financial point of view.
First full time job, first time taking out a major loan, first time worrying about your credit score. These topics may seem daunting, but the good news is you are at the perfect point in your life to make the kinds of decisions that will have a far-reaching impact on your financial future.
Collected here are a few of the ways young adults can begin to think about building their assets for future financial health.
Learning is a key asset, and now is a great time in your life to do it. Young adults are more likely to have the ability to further their education without the additional responsibilities of caring for a family or paying a mortgage.
Don’t undervalue the worth of education – both formal and informal. College and trade school are great ways of improving your prospects in the job market, but informal educational experiences, like volunteering in your desired field, are also great assets.
The correlation between education attainment and earning ability is well known. But with the high cost associated with higher education, it can still seem difficult to take the leap into such a big investment for what can seem like a very intangible asset.
The good news is secondary education is more accessible today than it was 20 years ago. Colleges are becoming much more accommodating of students who work and there are myriad education opportunities online.
The most popular savings goal in our matched savings program is post-secondary education. It accounts for over half of our savers, and the majority of those savers fall into the 20-30 age range. To learn more about the ways we can help you start saving towards your secondary education goals, see the sidebar on page three.
Now that you’ve secured employment— perhaps as a result of investing in your education—how do you determine what your spending priorities are?
Most of the exposure we have to financial products comes to us through advertising and marketing in the mass media, which can make it difficult to make well-rounded decisions.
One thing to note is that it’s important to learn about financial products from a third party first, and then from those who are trying to sell you one of those products.
Use whatever resources you have at your disposal to learn about good financial habits. For some, that means starting with your own parents or grandparents and learning from their experiences. For others, it means conducting independent research, reaching out to trusted colleagues, or seeing what financial counseling is available in the workplace. Talking to your human resources representative about what kinds of financial products your employer has to offer is a great place to start.
A quick word on credit—Unless you have the luxury of living on an all cash basis you need to have an established credit profile and credit history in order to function in our economy. Credit is easy to ruin and terribly difficult to restore, so it can be a very anxiety-producing topic for many people. Making decisions related to credit while under pressure can have far-reaching negative consequences.
We recommend having a conservative approach to credit, at least when you’re starting out. Use your credit card, but pay it off. For some people the best way to stay on top of it is to pay weekly; for others it’s monthly. Other ways to build consumer credit are by taking out and paying a car loan, having phone and utility bills in your name, and having a checking account.
A website we recommend to all of our clients is www.kiplinger.com. It’s a well-respected personal finance site and it’s a great place to go for financial information, like which credit cards offer the lowest interest rates or which banks are offering the highest interest rates on savings accounts.
One of the things we always talk to clients in our savings program about is paying yourself first. It’s the idea that before even paying your bills you put a portion of your income into a savings account and you never falter on that commitment, whether that’s five or ten percent of your paycheck.
Typically we pay ourselves last, but committing to paying yourself above everything else creates the foundation for good financial behavior. It means that you’re placing your financial future ahead of other wants and building a habit of delayed gratification. It’s easy to convince ourselves that our wants are our needs in a consumer culture like ours. Practicing delayed gratification – whether that’s to retire, to buy a house, to pay for school, whatever it is – investing in those long-term goals builds the foundation for future financial health.
We like to say it’s never too late to start saving, but the reality is, now, as a young adult, is an extremely important time to begin forming saving habits and preparing for your financial future. Doing something, even if it’s very small, is better than doing nothing.
Even if you start by putting away 10 dollars a month into a simple savings account to start to see the benefit of compounding interest, it can be a great motivation to continue that habit of saving and of delayed gratification. Starting early and staying true to your saving commitment will allow you to build habits for a healthy financial future.