Graduates: Mastering Money Basics Has Lifetime Benefit Potential

Graduation season always brings to mind my first days in college. I was excited to arrive on campus but surprised, after pulling up in a bus, to see so many students in flashy cars. How could so many freshmen have their own luxury wheels? I noticed that again when my kids started college. 

I sometimes think about those students and wonder how they fared financially when they were out on their own and trying to get by on their first real—and probably modest—paychecks. Their parents had likely more money than my folks, but did they teach these young adults how to manage their finances? Did these coeds, who were able to purchase or were given such nice cars early in life, rack up debt? Could they cover their rent, without stress? Did they have student loans like those I had to pay off?

Ideally, young people learn money basics from their parents or guardians, like I did. But too many grow up without financial role models or have parents who are uncomfortable talking about financial matters. Shocking but true: Research has found that 63% of young adults don’t understand basic financial concepts. While young adults everywhere are underinformed about financial matters, in my experience, insufficient financial knowledge is more prevalent among young people of color, low earners and those lacking higher education.

The result of this lack of financial literacy? Adults who struggle to get by from paycheck to paycheck, rack up burdensome debt, have trouble saving money, and, ultimately, don’t sock away enough for retirement. 

It doesn’t have to be this way. Just as there are basics for staying healthy during a pandemic—washing hands, wearing masks when necessary, keeping a safe distance from others—there are best practices for creating financial health that aren’t difficult to master. And the benefits for those who get off to a good start pay off over a lifetime. 

My kids used to roll their eyes when I talked to them about money basics, but I knew how important it was to start early. Today, they thank me. These tips—from those conversations—are the foundation for a lifetime of good money sense: 

Live within your means. Creating a budget and sticking to it is a must. Yes, it’s difficult to pull off in a culture that touts instant gratification; but living within one’s means is essential. That means knowing and tracking recurring expenses, limiting nonessential spending, and committing to a monthly savings plan, even if only a modest one. How much anyone earns is irrelevant if the discipline to stick to a budget isn’t there—someone earning six-figures can easily spend themselves into a hole. Even families with plenty of money can make a point of talking about how restaurant meals, summer camp and vacations fit into a family budget.

Avoid the credit trap. If you want the flashy sports car, can you pay cash for it? No? Then you shouldn’t consider it. Failing to live within one’s means is bad enough, but accumulating debt makes it worse. Young people need to learn how to establish credit—and also how to use it wisely. Credit should be used for necessities and things that can be paid off quickly—not for luxuries. Too many people get carried away and purchase cars, clothes, and Instagram-worthy vacations they can’t afford. The result can be ruinous. 

Understand time is a gift. Money doesn’t grow on trees, of course, but when saved and invested wisely, it grows over time, and the benefits of compounding add up. The key is to start saving and investing as soon as possible: a person who begins saving and investing at age 25 might have twice as much money saved when they retire as someone who begins saving the same amount at age 35. 

Invest for the long haul. I love watching young adults become interested in investing. But I always warn them: don’t look for the next great stock. Diversify and stay the course, even when is economic uncertainty or headlines about exciting companies poised for growth. It’s important for investors to keep their emotions and impulses in check. For most people, including myself, that means working with a professional money manager. 

We all need a long-term goal to serve as a guiding light, keeping us on the right path financially and on the road to achieving our dreams. That goal might be a vision for retirement, the freedom to pursue a passion, leaving an inheritance to children—or even paying cash for a luxury car.

Here’s my dream: I would like to retire one day and become a business professor who inspires students to learn about money management so they can help others realize their goals. It’s a goal that I’ve aimed at for a long time, my personal North Star that has helped me keep my spending in check and my savings on track. 

With a goal in mind, sacrifices can be easy to make.

#FidelityAssociate