When we’re children, we have absolutely zero financial responsibilities. Our parents may start to teach us about the value of money by having us do chores in exchange for our allowance, but it’s not likely that they then make us use that allowance to buy food, or pay rent, or any actual financial obligations. Most of us will use our allowance to buy things we want and continue to rely on our parents for the things we really need.
However, young people arriving at college find themselves in an entirely different situation. Now, they must not only feed and clothe themselves, but also pay their own rent and bills, buy their own college supplies, and budget for fun stuff like eating out and going to shows. Where and when do we learn these skills?
Unfortunately, the skill of managing money, or financial literacy, is rarely taught in schools. While it’s definitely a real-world skill that will improve with experience, it’s definitely something that can be learned in the same way we learn to read and write. Understanding finances is incredibly important, as mismanaging your money when young can have consequences in later life.
Of course, our parents do play an important role in preparing us for financial responsibility and can be a valuable resource for young people looking to learn. But then, what happens when our parents themselves don’t have the skills, or are simply unable to, for whatever reason?
Don’t ignore student debt
We’re here to give you a quick rundown of what you need to know about money, and the specific financial challenges that young people can face. Read on!
Unless your degree was entirely funded by your parents or by scholarships, you’d leave college in some degree of debt from student loans. How much debt you accumulate will depend on the cost of your college tuition and what percentage of it was funded by the loan.
As the job market becomes increasingly competitive, many students are taking on huge debts because they feel going to an expensive school, or getting a graduate degree, to be completely necessary. All this can lead to student debt approaching six figures.
No savings no financial responsibilities
You can minimize your debt by taking AP classes while still in high school and reducing the time you need to get your degree, living at home with your parents, or by taking a part-time job while you study. However, graduating with the debt of some kind is almost inevitable. In fact, over two-thirds of students take out a loan to fund tuition. Overall, student debt reached 1.5 trillion dollars in 2019.
There’s no doubt that starting your career with a huge pile of debt is discouraging, and it’s easy to pretend it doesn’t exist in favor of enjoying your first-ever real salary and spending your hard-earned cash on whatever the hell you want. This simply isn’t realistic, and paying down your student debt (or at least making a start on it) is crucial in those first few years after graduation. Think of it this way – the sooner you pay, the sooner you’re debt-free and can get on with your life.
Young people just starting out in life, especially those who are carrying a lot of student debt, are unlikely to have any sort of savings. Young people are just as likely to find themselves in a situation where an emergency fund is needed, even if their potential emergencies aren’t the same as those an older person might experience.
Savings come in handy when navigating the unexpected and unpredictable challenges that life throws at us – sudden unemployment, medical treatment, the car breaking down, and so on. Even keeping a small amount of money in a savings account can make a huge difference when things get tough. For young people, even a minor emergency can mean taking out a line of credit to cover the cost. That means more debt.
Living beyond your means
If you’re able, dedicate a small amount of your monthly budget for a savings account. If that’s not possible, don’t worry about saving a set amount and simply save what you’ve left when your paycheck comes in. Also if you’re struggling, there are apps available that simply empty your bank account of whatever is left and pop it into a savings account for you. Then, your new paycheck comes in, and you can start again. You’ll be amazed how quickly even small amounts add up!
At the start of your career, you’re unlikely to earn a spectacularly large salary. Even if you’re fortunate enough to land a great job in an industry that pays well. While younger people generally have lower outgoings than those who are older, everyday life can still get really expensive, really fast. What if your income only just covers your outgoings, with no disposable income left over for treats and to enjoy life? Or worse, what if your outgoings exceed your income?
Tightening your belt
Much has been written about how ‘millennials’ and younger people could be much better off financially and much better able to save for, say, a house, if they just tightened their belts a little and stopped going to coffee shops, but the reality is that living expenses have increased sharply over the last couple of decades and in many industries, wages simply aren’t keeping up. This makes it all too easy to find yourself living beyond your means just to cover the basics.
If you’re struggling to keep your income and outgoings on an even keel. It’s a good idea to do a budget just to make sure there aren’t areas where you’re overspending. Even more if there are, trim them down. Also if there’s nowhere you can make savings, you need to consider what that means in the long term. You may need to change jobs, consider moving in with a roommate, or ask for overtime if your job offers it.
You can take out a line of credit in emergency situations if you really need too. But remember that you’ll eventually need to pay back that debt. There’s no such thing as free money! You also need to understand your financial responsibilities.
If you find yourself in debt, your creditors won’t simply go away. Pretending that they will and burying your head in the sand about your situation won’t make it go away. In fact, it’s likely to make it worse. Failing to address debt means you’ll start to accumulate interest, increasing your debt load, and potentially damaging your credit score.
If you can’t make a payment, contact the creditor to arrange a repayment plan you can afford. They will be open to this, and it’s preferable for both parties to understand the situation and ensure payments can eventually be made.
One of the biggest hurdles for young people is peer pressure. It starts while we’re still children and can last for most of our lives. From sneaking cigarettes at school to begging our parents for the latest toys and gadgets. Even more to living in apartments we can’t afford just because our better-off friends might be doing the same.
Too much, too soon
The pressure to achieve certain things or reach a certain level of financial security before a certain age also comes from our parents, work colleagues, and society at large. We’re constantly bombarded with ideas of how we ‘should’ want to live our lives. And how much money we ‘should’ have, and that we ‘should’ settle down and buy a house. Also get married, and have children.
What if you don’t want any of that stuff right now, or can’t afford it; or would rather spend your money on traveling, or nice dinners, for a while longer?
This kind of pressure can lead us to make financial decisions we simply aren’t ready for and don’t really want. Which could have serious consequences down the line both for our finances and our overall happiness. Resist what other people say you should do, and do what you think will make you happy.
Given how little we’re taught about financial responsibilities management before we have to just ‘get on with it. It’s all too easy to become completely overwhelmed. This is an especially tough situation to be in, as mismanaging finances when young can have significant implications later on. It’s much harder to rebuild your credit status than it is to destroy it.
If you’re feeling confused and stressed about finances, don’t try to just feel your way through it and hope for the best. Ask for advice from your parents, a financial advisor, a website such as Patch, or even take a night school class if there’s one in your area. No matter how big the challenge seems, it isn’t too big to handle. There’s always a way through it. You just need to know what that is, and ignoring financial problems is a sure-fire way to make them worse.
You can build a better financial future and know your financial responsibilities.