Financial Literacy – Save First, Spend Later
Before the young adult in your life gets their first paycheck, make sure they have their money priorities in order. Once they do, the benefits will keep compounding as they go through life.
- Make sure the young adult in your life is contributing at least 10 percent of their paycheck to a 401k plan.
- Even if a young person has had part-time jobs through school, they don’t really understand what it costs to live in the real world.
- Without good saving and investing habits, many young adults find themselves with mortgages, spouses and children, but no nest-egg despite earning a good salary.
In this, our second post about financial literacy, we’ll talk about launching young people into the workplace. Last week, we looked at building initial money skills for children, from the age of 4 through the teen years. Now we’ll look at money skills for young adults. One of the things that we’ve learned from successful people in the greatest generation of wealth is that they save first, and they spend second. It’s a basic money skill that’s important to learn right as early as possible.
Suppose you have a young person off into the world. They’re in their first real job and they’re making decent money. You really want to sit down with them and get very clear about the importance of having a financial plan. You can refer back to those four slots in the Savvy Pig and say, “First we want to invest, then save, then spend and then donate.”
The investing part is simple since most corporations have a 401(k) plan, often with a matching program. And if they don’t, there are other ways of setting up a separate retirement account. Another benefit of a 401(k) is that it’s not easy to access the funds once they’ve been invested. That helps prevent careless spending.
No idea of what the real world costs
Most young people have no idea how expensive the real world is, so they should be investing at least 10 percent of their gross pay into a 401(k) or other retirement account. The key is that they can only spend what’s left over after they’ve taken 10 percent off the top for the 401(k), then their housing and their food.
If we don’t get young adults launched correctly upfront, they can start down a very bad path. Fast forward ten years. They’ve got a house now and they’re married with children. If they haven’t learned good saving habits, they could be spending everything they earn. Even with a good salary, they may have no nest egg built up. And it just gets harder and harder to save as they go through life.
Sit down with your young adult before they earn their first real paycheck. Get them into the discipline of saving first and spending second–just like their parents and grandparents did. Also remember that April is National Financial Literacy Month. Leading up to that we have a great seminar in March called Taking Charge of Your Wealth. We’d love to see you there and feel free to bring a guest.
So, until next time, enjoy. Gary