Did you graduate from high school not really understanding how credit cards, mortgages, life insurance and/or investments really work? And has that been problematic in your adult life?
If so, you’re far from alone. Many believe the U.S. public education system has failed to teach students enough financial knowledge, though that appears to be changing. Forty-five states now include financial literacy in their K-12 curricula, up from only 21 in 1998, reports CNBC.
Still, many young adults could be much more financially astute. Of more than 17,000 people across the U.S. taking a general financial literacy test geared toward teenagers, only 61 percent of subjects 19 to 24 and 73 percent of those 25 to 35 have been able to pass. The test measures individuals’ ability to earn, save and grow their money.
The problem with that is that money management is a quality-of-life issue. CNBC points to data showing high school students who take personal finance courses maintain better average credit scores and lower debt delinquency as young adults.
If you’re still learning, here are basic tips you should know for financial soundness throughout your life.
- Invest in college. In all likelihood you’ll need training to enter a profession allowing you to make a decent living without too much financial stress. For example, a recent U.S. Census shows average earning power in the U.S. nearly doubles with a bachelor’s degree. Going to school will be easier when you’re young and less encumbered, but it’s never too late to consider. If tuition is problematic, seek a moderately priced program, and then secure a loan.
- Choose a career maximizing your natural talents so it’s easier to pursue long term. “Studies indicate your best chances of finding workplace happiness lie in having a job that fulfills your basic, human psychological needs on a daily basis,” writes Ron Friedman in CNN.
- Plan for retirement from day one. As far away as old age seems, you should start socking away 7 to 15 percent of your income ASAP to maximize accrued interest. If your employer has no 401(k), seek an IRA. Keep that money off limits except for emergencies.
- Think of savings as a hedge against stress. It’s tempting to splurge on long-awaited extravagances, but a nest egg means peace of mind when life throws you challenges such as job losses or medical emergencies. Estimating hours worked to buy that new car may put things in perspective.
- Understand the importance of a good credit rating and the factors affecting it. That rating will help you secure optimal terms for a mortgage or loan, and it’s sometimes checked by companies as a condition of employment.
- Think hard about credit cards. Many financial gurus recommend avoiding them, while others recommend establishing a solid credit rating by using them sparingly and scrupulously paying monthly balances. Know that credit card companies prey on the young and inexperienced, and can legally boost interest rates and late fees whenever they wish. Debit cards are an excellent alternative if you take security precautions.
- Learn the basics of investing. Read online guides to learn your options. As your investments grow, you may hire an adviser who specializes in optimizing your money. Seek referrals, check credentials and understand fee structures before choosing.
- Regularly review bank statements. This chore can easily fall by the wayside, but it’s crucial to ensuring your security is uncompromised, your paycheck’s being deposited, your charges are your own and all banking fees are legitimate.
- Establish a written budget. You work too hard for your money to let it slip through your fingers. Balance your income with your expenditures so you can differentiate wants and needs, pay bills regularly and keep a tight handle on disposable income.
- Know when to seek help. If your financial plan isn’t working, it’s better to face the problem head on than remain in denial and hope it goes away. There’s no shame in admitting your financial mistakes; such problems are so prevalent that nearly 773,000 non-business bankruptcies were filed in fiscal 2016, and the U.S. credit repair industry is worth some $4.1 billion dollars annually. Multiple resources are available for addressing debt and repairing credit; talk frankly with creditors, consider working through the National Foundation for Credit Counseling to find a legitimate low- or no-cost counseling agency and/or learn steps you can take at DaveRamsey.com and other online sources.
- Don’t marry (or partner financially with) anyone without vetting their financial history and sense of responsibility.
- Balance work life with home life. Workaholics often regret their priorities later in life. “If you sacrifice your relationships, your emotional well-being and your health by working obsessively, you will not achieve happiness but might succeed in becoming lonely and miserable,” advises financial psychologist Brad Klontz in Psychology Today.
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