Each year, as graduation season rolls around, I think back to my own time in school. Overall, I can’t complain. But, while I learned lots of facts and figures over the years, I am always surprised that schools don’t teach more “life skills” to young people. Specifically, I have always felt that schools should require basic courses in two important areas: (1) Parenting and (2) Personal Finance. In that spirit, and in an effort to do my part, this article is especially for young people.
Of those two areas — parenting and personal finance — I am going to stick to the area I think I know best (and something tells me that my teenage children wouldn’t disagree). So, without further ado, here is my crash course in personal finance for young people:
My advice fits into three categories: book recommendations, lifelong financial commandments and specific things for young people to do when they start their first jobs.
Books
Both of my book recommendations are parables, but if you never read anything else on the topic of money or career, these two just might be enough.
The Richest Man in Babylon – A classic from the 1920s, told through a set of stories that will truly bring a smile to your face, The Richest Man contains simple but timeless lessons on how to manage one’s financial life.
The Go-Giver – Another parable, this is unquestionably the best how-to manual for conducting relationships in a way that makes you feel good, makes others feel good and incidentally maximizes your success.
Lifelong financial commandments
Confucius once said, “Life is really simple, but we insist on making it complicated.” This certainly applies to personal finance. Yes, there are lots of moving parts, but if you only do these two things, they will take you a long way:
Avoid debt like the plague – Young people need the freedom to explore careers and the flexibility to move around. Debt, however, makes both of these things harder. For that reason, especially with burdensome student loans, young people should do everything they can to avoid taking on new debt.
Recognize that your most valuable asset is yourself and invest in that asset aggressively. While young people may not have too much in the way of financial assets, if you really think about it, they are some of the wealthiest people around. Why? Because they have decades of earning capacity in front of them. They should do everything they can to maximize the value and the fulfillment they receive from all of those years of work.
Action items
Sign up for your company’s 401(k) or 403(b) plan – For most young people, their first paychecks don’t leave much surplus, and that can make it hard to save. But this is another area in which new graduates’ youth works in their favor. The power of compound interest can turn a dollar saved at age 22 into many dollars at retirement, so young people should save whatever they can, even if it seems like just a small amount.
Set up an online savings account and ask your HR department to direct $50 out of every paycheck into that account. Over time, that will become a substantial rainy day fund, but it is important to automate the savings process and to keep it segregated. That will make it harder to raid on a day that isn’t really that rainy.
This is probably more advice than any one young person wants to hear on a bright spring day, but if you have friends or family who are heading out into the world, I hope you will share this with them.
