Young people today lived through the 2008 recession and its aftershocks. I can tell you now, the words ‘global financial crisis’ do not tend to build financial confidence. The numerous disparaging avocado toast editorials in the national press also tend to make young people collectively want to switch off.
But you need to be paying attention.
In 2017, a third of under-35-year-olds surveyed by ASIC said I have difficulty understanding financial matters. 26% of couples with children at home said the same. Meanwhile, nearly half of single respondents living at home with their parents (48%) and again couples with children at home (45%), said Dealing with money is stressful and overwhelming.
Read more: How positive reinforcement helps teams thrive
ASIC lists five behaviours that measure an individual’s financial literacy:
- Keeping track of finances: approaches to managing everyday expenses
- Planning ahead: planning for the medium and longer term, including retirement and beyond
- Choosing financial products: shopping around, and understanding and assessing investment risk
- Staying informed: use of information, tools and guidance when needed
- Financial control: savings behaviour and managing debts
Keeping these five behaviours in mind, young people can become confident in their ability to manage their money and achieve financial security now, and financial independence later.
Tips for right now
Read more: Why inertia is dangerous for start-ups
Know and manage your everyday expenses
In ASIC’s report, nearly 80% of those surveyed said they had a budget in the last six months. With the advent of internet and mobile banking, it’s easier than ever to keep track of your money in real time. Be sure to keep your eye on your accounts for unusual and suspicious entries.
Sit down one evening with your three-month statement and record where and when you receive income, and where and when you regularly spend money. Website subscriptions come out of your accounts on the same day every month, for example; so do insurance payments. Bills usually arrive around the same time monthly or quarterly. Plot these expenses out on a calendar, and you will start to have confidence about when and where you can spend – and save – money.
Read more: 5 questions to answer before you start your business
Pay your debts, pay your taxes, and pay into your super
You may have a HECS/HELP debt from attending university. You may have credit card debt. My best tip here is talk to a financial advisor about how you can comfortably repay that debt. Financial advisors can also ensure that you’re doing the right thing when it comes to reporting and paying your taxes.
Meanwhile, employers have been compelled to pay into superannuation since 1993, so most young people should have a super account somewhere if they’ve had a paying job – even if they’re not sure where it is (and some people might have more than one). My tip: find your super and put it all in one place, then make your own regular contributions to it. By the end of your 20s, you should have at least 10% of one year’s salary accruing interest in your super account.
Read more: The importance of knowing your own value
Tips for the future
Get a source of compound interest
Einstein called compound interest the eighth wonder of the world. There’s a reason for that.
Get a dedicated savings account. Internet and mobile banking make it easy to keep track of multiple bank accounts. If you open a dedicated savings account with your bank, you can separate your ‘safe money’ from your ‘play money’ and start earning interest on your safe money. Whatever you earn in interest is free money. Who doesn’t want free money?
Get a term deposit account. Similar to a savings account, but you actually can’t touch this money: once you lock it in a term deposit, it’s as good as gone. The returns (ie. free money) are greater with a term deposit than with a regular savings account, however, so there’s a definite benefit if you know you’re not going to touch that money for six months or more.
Read more: 5 trends that are disrupting the insurance industry
Make some small first-time investments – with help
Property. The NSW government specifically introduced a package of measures meant to improve housing affordability in the state for first home buyers. This includes abolishing stamp duty on all homes up to $650,000 and providing grants for building and buying. That means the time could be now to start looking at buying a house – either for living in, or as an investment property, for someone else to live in and pay you rent. Talk to a financial advisor or a mortgage broker before making the jump for the first time.
Investment apps. Start somewhere, start anywhere. There are a multitude of apps that can teach you the basics – like apps that can invest the spare change from your bank account ($0.80 when you buy a $4.20 coffee, for example). Again: talk to a financial advisor before getting involved with these. Don’t forget that anything you earn from investing is a capital gain and has to be reported on your taxes, and do be aware that all investment operates on risk/reward: the greater the risk, theoretically the greater the reward, but it doesn’t always work out that way.
Read more: How we all benefit by being more financially literate
Get a mentor
Whether it’s your parents, your experienced older friend, your partner, a financial advisor or a career mentor, mine the people around you for all the advice they’ve got. Even though I’m writing about young people, I’ll also mention that Google is your friend. Someone on the internet has the knowledge you need. It’s just a matter of finding a reputable source of information for the thing you want to learn about.
And finally… make a plan
When you set yourself goals, saving money starts to have a point. With every goal you achieve, you move closer to security, to independence – and to real financial literacy. Here are some goals if you’re having trouble getting started. Start with one.
- Have $X in “emergency savings”.
- Put $X in a term deposit account.
- Pay off your HECS/HELP debt, or your credit card debt. (Preferably both.)
- Contribute $X to your super every month/quarter/year.
- Have $X in your super account by age 20/30/etc.
- Look for a house you’d want as an investment property.
- (If you can, save up 20% of the deposit for that property to avoid Lenders’ Mortgage Insurance fees. Otherwise, 5% is a bare minimum amount.)
- Take a night course or an online course in finance, or any kind of career development.
- Develop a stock portfolio.
- Start a business.
- Plan your next holiday (ie. have something fun to save for along with all the serious adult stuff).
Retirement doesn’t just happen; you have to work for it. One day, you will stop working. On that day you will want to have enough money to support being alive while not working. ‘Being alive’ is just the bare minimum, by the way: ideally, you want to enjoy your retirement with a home, a family, and be able to travel. Wouldn’t it be nice?
Read more: What women want: a better way to get family day care insurance