Setting students up for financial success
The fall season is certainly well known for getting back to school so it’s also an opportune time to talk about finances for post-secondary students. Here’s a segment I did recently on Alberta Primetime on the topic of setting up students for financial success.
Should students start financial planning?
It’s never too early to start planning but one thing I know is it’s very difficult to plan for a life you have no clue about. To try and think about your life in your fifties and sixties. For most twenty-somethings, that can be really hard to do. If you think about it, So much can change in 5 to 10 years (let alone 30 to 35 years). The key is to really understand what a plan is. A plan is simply meant to help make an unpredictable future more predictable. It’s about looking into the future. And from a financial perspective, it’s about asking yourself where you want to see yourself financially 2 years from now or 5 years from now or if you can do it, 25 years from now.
Related article: What is financial planning?
Developing good habits
Financial success really is about developing good habits. We all have habits in life; both good and bad habits. When you are young, the best thing you can do is to develop some good financial habits sooner than later.
Related article: 7 habits of wealthy people
What habits should you be forming early, what should you learn about money when you’re young? The best habit you can develop at a young age is developing the habit of awareness and engagement. It’s important to participate in your finances. After 25 years of working with people in the financial industry, the people that I have seen that are successful financially are usually the ones participate in their finances. The more is more aware you are and the more you participate in your finances, the better off you will be. I’ve always said “Nobody cares about your money and finances than you. If you don’t care enough to participate, who will?”
Students saving money for retirement
Is it actually time to set aside some funds for retirement when you’re still in school? Yes and no! So math will teach us that the best time to save is to start as early as possible. It’s a mathematical wonder called compounding. I’m sure we’ve all seen the mythical charts and graphs about putting money away in your 20’s and turning it into millions by the time you retire. Yes, the math is true and yes the math works. Unfortunately for most people, the problem is dipping into your savings along the way and spending it before retirement.
Related article: The power of compound interest
I believe saving to spend is not saving. It’s called deferred spending. One of the challenges people will have is the idea that because you saved for a car or a down payment on a home or a trip to Hawaii, you learned how to save.
Young people need to know that saving for retirement is about saving it for the long term. It’s not easy but if you can figure it out, it will be a great habit to form early.
Debt is the silent killer of wealth
Are there common mistakes or misconceptions young people have when it comes to money and their financial future (I actually knew a student who lived on their credit cards for years thinking there was plenty of time to pay them off later… there were tears when they applied for their first mortgage and could not get it because of all the problems created from her credit cards).
Over the past 25 years, when I think about the people who have the most stress and the biggest problems, their situations are usually caused by debt. Unfortunately, I see a lot of young people developing bad habits around debt at a very early age because debt has become more accessible than ever. There was a time you needed income to get debt. Now some Financial institutions are giving out debt based on potential future income. A few years ago, I met a med student who got a $100,000 line of credit only to go blow half of the line of credit on a new car.
With every dollar you spend on debt, there is a future compromise. I teach older adults the lesson that you should not spend future income. This is a lesson and habit that younger adults should learn early.
Setting yourself up for financial success when you are young really comes from developing a few key habits around tracking and managing your money. Spend less than you earn by keeping track of your spending, don’t get yourself into big amounts of debt and if you can save some money along the way, you can’t go wrong.
Related article: 7 Habits of Wealthy Canadians
Is there a word missing in your quote: “Nobody cares about your money and finances than you.”
What you’re saying is very true. However, I find your article without the ” knockout punch” that is needed to get the attention of the younger set. They listen, but often don’t get the message unless they are forced to consider alternatives to all the things they want in life… which can be achieved if they are prudent about finances as a consideration before the wants are fulfilled.
You used the word awareness and that may be the key to make students conscious of their financial situation.
Some students are already very much aware of their financial situation: they may choose to go to a university near home, or work somewhere during their off-hours, ignore the booze and March break.
What should they be aware of? Money is a tool, not an emotional panacea. Student Loans are not gifts and beyond the initial amount, they cost interest that also needs to be repaid.
Where did the two main types of student learn their attitude towards money? What influenced them most?
Awareness of money is a life-long process first learned at home, regardless of the financial situation of the parents.
Schools, from elementary onward ignore money, hide it from their students. It could be incorporated in math, history, geography, sports.
Once aware, it’s impossible to ignore… Don’t think about a pink elephant. ☺
Maybe 3% of kids will never be aware of money – how many today? Pretty good success rate.
A mortgage is spending, or at least committing, future income: yet home ownership and mortgages are an acceptable financial practice.
For initiates to financial awareness there is no difference between financing Spring Break (from a Student Loan) or a mortgage.
Awareness, education, saving, investing, consumer debt, rule of 72, income versus capital depletion, income tax, etc. All these words and concepts should be clearly and instantly understood, though they may vary somewhat for every individual.