Personal finance is not a topic taught in most educational settings. As a result, when young people finally face the inevitable day when they must make their own economic choices, they usually find themselves in the dark. As much guidance as parents and guardians provide, ultimately discovering the big picture of finances lies in the hands of the individual. Here a few tips on where to start!
One of the biggest mistakes young people make when initially opening their own bank account is only utilizing the checking account. Having the checking account as the only allocation of money coming in and out, it’s easy for someone to lose track and potentially overdraft. The creation of a saving account gives someone just starting out an alternative place to allocate any immediately unnecessary funds. Although many banks require a checking or savings account to maintain a certain amount of money at any given time, banks such as PNC often partner with colleges to provide students with limited to no minimum requirements for accounts.
Learning to put small portions of money away early on, creates an understanding of the importance of always having something saved “for a rainy day.” The saying “pay yourself first” is a great way for young people to understand the relevance in setting aside a small amount out of every paycheck or monetary gift they receive into their savings.
Not everyone is expected to know as much as accountants and financial advisors when it comes to personal finance, but becoming knowledgeable about the basic concepts of income taxes is crucial. Many young people are surprised upon beginning their first job, especially the numbers reflected on their first paycheck and the significantly lesser value it possesses compared to the salary amount they were told they’d be receiving. Knowing the difference between net and gross income is important to understand. Investopedia shares some tips on understanding tax deductions and even provides resources for figuring out net pay (after taxes) based on gross salary and location of residence.
Start Building Credit
A number of major decisions people want to make in life rely on their credit score. Buying a house, a car, and getting a loan are just a few of the life choices that rely on an individual’s credit score. Even if a credit card is unnecessary for someone to open, having one, using it sparingly, and making payments on-time can drastically improve a credit score. Sometimes paying every bill with cash or directly from a checking account is doing more harm than good, since it lacks any proof of credit history. The VP of Wealth Advisory Services spoke to Mental Floss about the importance of building credit at a young age. He shared that even opening a low-limit credit card and using it for small budget items can greatly improve credit appeal and significantly help in regards to making large ticket purchases in the future.
Unfortunately, personal finance has yet to find a place to fit into most school curriculums. As a result many extracurriculars have attempted to fill the gap. Learning from parents and mentors is a great way for young people to begin to learn how to make sound financial choices. Becoming educated in as many areas of personal finance as possible lays the groundwork for a successful future when it comes to one’s money.