As young people get their first full-time job with a substantial paycheck, their money management activities need to be reconsidered, which include:
1. Automate your savings. For unexpected expenses and major purchases, set aside a specific percentage or amount of your income from every paycheck. These funds should be directed to one or more dedicated accounts.
2. Make use of different accounts. This money management strategy can help you plan for different savings goals and can prevent spending money planned for a specific purpose. Consider using a checking account to pay regular expenses, along with one or more savings accounts.
3. Start retirement saving. Start with 3 to 5 percent of your gross income, increasing to 15 percent as soon as you get raises and bonuses. These funds may be in a company-sponsored 401(k) or a personal IRA or Roth IRA.
4. Pay off debt. If you have college debt, create a plan to pay it off, especially credit card debt. Set a goal to become debt free in your 20s.
5. Practice wise spending. Minimize your transportation, housing, and clothing expenses.
For additional information on money tips for your first job, click here.
- Have students talk to others to obtain money management suggestions to implement when completing college and starting work.
- Have students create a personal plan for improved money management.
- Why do people start taking on more debt when starting work?
- Describe money management actions you might take as you complete college.
Limited knowledge of personal finance and weak financial literacy skills are some of the concerns expressed by college students in a survey conducted by WalletHub. Findings in this study included:
- Nearly all (93 percent) of the students surveyed expressed concern about the economy.
- After graduation, the two major worries of students are not finding a job (36 percent) and educational loan debt (30 percent).
- One-fifth of students expressed a belief that a college education is less important since the COVID-19 pandemic.
- About half (52 percent) of the students responding voiced a concern that they were not learning enough about personal finance in school.
- As a result of the pandemic, the three major financial lessons learned were: (1) having emergency savings (44 percent); (2) not going into debt (23 percent); and (3) having a steady job (22 percent).
Some suggestions to address these concerns include:
- Financial anxiety can be reduced with simple personal finance actions: track your spending, cut back on unnecessary items, shop wisely, maintain a workable budget, pay off debts, and increase the amount in your emergency fund. Most importantly, emphasize the enjoyment of your connections and relationships with family and friends rather than on material items.
- Various career paths may not require a college degree; consider online courses, certification programs, trade schools, and other educational/training options.
- Be creative in your savings efforts with: (1) saving $5 a day instead of $150 a month; (2) using “no buy” days to save money; (3) paying for your drinks (or snacks) at home by setting aside the “price” in savings; (4) visualizing a savings goal and budget categories with a photo or post-It notes as a reminder; (5) create, or locate online, a poster that displays savings and debt categories to track your progress; (6) placing your credit card in a bag or container of water and place it in the freezer to avoid impulse purchases, then defrost it under warm water when you need to pay for an emergency.
- When applying and interviewing, clearly communicate the connection between your skills and experiences with the current and future needs of the job position and company. This requires strong research of the company and industry trends but will allow a person to better connect with their prospective employer. Also, be ready to talk about research projects, team experiences, and creative problem-solving.
- Although an increased number of personal finance classes are becoming available in schools, also seek out financial literacy education through community-based workshops, church outreach programs, and neighborhood organizations.
This research was the result of a nationally representative online survey of over 250 respondents. Responses were normalized so the sample would reflect U.S. demographics.
For additional information on the student money survey, click here.
- Have students talk to others to determine if their opinions are similar to those presented in this article.
- Have students create a role-playing drama that communicates actions to avoid various personal financial difficulties and career planning mistakes.
- Which of the survey results are similar to your current attitudes and experiences?
- What additional money and career topics not covered in this survey do you believe are of current concern for students and others?
As we approach the end of the year, consider these actions to help create the foundation for financial success in 2022:
- Review spending for the year. Comparing your actual spending with budgeted amounts will help you plan spending for the coming year. For the upcoming year, track spending with an app, spreadsheet file, Google doc, or a written record.
- Use flexible spending account funds. Be sure to spend any money in a flexible spending account on qualified medical expenses before the end of the year, or those funds might be lost. However, due to COVID-19, you may be allowed to roll over the full balance into next year. Contact your benefits department to see if you qualify.
- Donate to charity. This will not only create a tax saving, but will also help people in your community and around the world.
- Create a backup plan. Review the beneficiaries on your financial accounts. You should have a durable power of attorney to handle your financial activities if you are not able to do so. A health-care proxy (power of attorney) is someone to speak on your behalf regarding medical care when you are not able to do so. A will sets how your assets will be distributed after you die.
- Consider increased retirement contributions. With increased limits for 2022, plan to increase the amount set aside for long-term financial security while reducing current taxes.
- Conduct a life audit. Start with identifying your short-term and long-term goals with sticky notes or index cards. Then, sort your goals by category, such as personal development, work/career, financial, travel, family, community service, and health. Next, organize within a category based on time of accomplishment, which might include: now/soon, always/everyday, later this year, the next year or two, and someday. Take photos of your notes, place them in a visible location, or use an app such as OneNote as a reminder of these targets. Finally, reflect on your goals by determining why you have certain goals and what actions you need to take. Be sure to set deadlines. Also consider how your goals relate to the type of life you desire for yourself. Do your goals reflect your beliefs, values, work situation, and personal relationships?
For additional information on year-end financial planning, click here.
- Have students talk to others about recommended financial actions to take before the end of the year.
- Have students create an action plan and timeline for a specific goal.
- What attitudes, behaviors, and circumstances might restrict a person from taking certain year-end actions?
- Describe information sources and personal contacts that might be used to obtain guidance for achieving a specific goal.
As a result of the economic difficulties during the COVID pandemic, many Americans received government stimulus checks. These payments were designed to minimize or avoid financial difficulties.
Recipients of the first two stimulus checks used the majority of funds for daily living expenses with food and utilities as the top items. Those who received the third check had some significant changes in their use of the money. An increased portion was used to pay off debt and for savings, including money set aside for an emergency fund. This trend indicated that many households experienced improved financial stability. However, among lower-income groups the third stimulus check was still needed for monthly bills and day-to-day essentials.
People continue to be in need of a cash cushion. Financial advisors recommend using money from stimulus checks or tax refunds to pay off high-interest debt and for an increased savings account. While many households have are better off than they’ve ever been and improving further, millions of others face ongoing financial hardship.
For additional information on stimulus check use, click here.
- Have students talk to those who received stimulus checks to obtain information how the money was used.
- Have students describe a research system that might be used to determine the spending, saving, investing, and credit use habits of various groups of consumers.
- What are reasons people are unable or unwilling to practice wise money management?
- Describe actions that might be taken to prepare for unexpected financial difficulties.
A mother or father raising children without assistance from a partner can create financial difficulties. To avoid fear, frustration, and anger, consider these actions:
- Assess your situation. Determine your monthly after-tax income, monthly bills, money in savings, and money saved for retirement. Knowing these amounts will provide a starting point and foundation of where you need to go.
- Cut unnecessary spending through wiser shopping, lower household expenses, and not buying certain items that you can do without.
- Plan for additional income. Consider your current work situation, a new job, a raise or promotion, overtime pay, a second, part-time job, freelance work, or items that you might sell.
- Seek extra income sources. Additional income can result from skills and interests you may overlook. Consider new job training, or starting your own business. More income will also mean additional savings for financial goals.
- Create an emergency fund. To be ready for financial struggles (job loss, home or car repairs, medical expenses), have a cash cushion to cover three to six months of expenses.
- Save for retirement. Additional amounts might be needed for long-term financial security if you had to split retirement funds with an ex-spouse or partner. Budget a monthly amount for your retirement fund.
You may feel overwhelmed at times, but don’t get discouraged. Start saving a small amount, such as one percent of your income for emergencies and one percent (or more) for retirement. Then in a few months, increase the percent of income you are saving.
Continually track your spending, and review your budget and financial goals. This action is especially vital if you are self-employed with a fluctuating income. Save more in higher-income months to be ready for lower-income months.
Also, lower your expectations to match the reality of your income situation and household needs. Finally, make a commitment to work hard, not give up, and support your children, emotionally and physically.
For additional information on single parent money management, click here.
- Have students talk to single parents for additional financial suggestions.
- Have students create a plan for specific money management actions for single parents.
- What are reasons that single parents might encounter financial difficulties?
- Describe shopping and income actions a single parent might take to reduce spending and increase income.
Most every organization uses metrics to determine success. Also referred to as key performance indicators (KPIs), these numeric measurements can be used to assess financial success and progress toward goals. When selecting personal financial KPIs, be sure to: (1) identify what’s important to you for your financial goals; (2) create a system to track your progress, in writing, with a computer file, or an app; (3) involve all household members in the decision process.
Some common KPIs you might consider monitoring include:
- Credit score, which is affected by missed debt payments and involves your ability to access loans in the future.
- Savings rate is vital for future major purchases and planning for retirement. Financial advisors recommend saving 10-15 percent of your income.
- Discretionary spending measures a person’s level of expenses related to meals out, fancy clothes, vacations, and other non-necessities, so money can be saved for more important goals.
- Net worth (total assets minus total liabilities) measures financial health progress, which can increase by paying off debts and increasing saving and investing.
More creative KPIs are available for advanced personal financial planning. The Financial Health Index combines several financial metrics to provide a measure of overall financial health. The Financial Independence Number indicates the amount of money needed to live off the investment returns of your net worth. Living Within Means Index measures if necessary expenses are covered by a person’s income.
For additional information on KPIs for personal finance, go to:
- Have students create a visual design that might be used to monitor progress for one or more personal finance key performance indicators.
- Have students talk to others about actions they take to monitor their financial progress.
- Refer students to the Road Map/Dashboard feature at the end of each chapter of Personal Finance or Focus on Personal Finance to view additional examples of key performance indicators.
- What are the benefits and limitations of personal finance KPIs?
- What are other KPIs that might be valuable indicators of personal finance success?
A lifetime of skillful financial decisions starts with experiential learning at a young age. To increase financial literacy for the next generation, consider these actions:
- Give children a payday. Instead of a weekly allowance with simply giving money, create a system of earning these funds. Connect their household chores to earned amounts with a weekly payday. This practice can teach a child that people are paid for work to earn money for their living expenses.
- Create awareness of opportunity cost. Every financial decision has trade-offs. Once money is spent, that money is not available for other uses. Keeping money in a clear jar allows the young person to visually see what funds are available, and when the money is gone.
- Allow children to experience borrowing. If a child wants to buy something but does not have the money, set up a signed loan agreement with repayment terms. Also create a plan for the amount owed to be taken from future household earnings. Have the young person physically pay the money to better understand how credit works.
- Connect them in the budgeting process. Include children in the discussion of family finances and the household budget to help them understand where money is spent. Consider creating a chart with spending amounts, or use slips of paper representing money that are used to pay the bills each month.
- Teach wants vs. needs. Shoes or a clothing item may be a need but not a high-fashion version. To cover the cost of the higher-priced item, young people should be required to earn the amount for the additional expense.
- Use money games. These activities can help children understand earning, saving, wise spending and other basics of money management for a financially sound future.
For additional information on financial literacy for children, click here.
- Have students conduct online research to locate other actions used by parents to teach their children smart spending and wise money management.
- Have students talk to parents to obtain suggestions that might be used to teach wise money management to children.
- What are the financial, social, and relational benefits of children learning smart spending and wise money management early in life?
- Describe possible money management learning activities for children that involve creative use of technology.
Many young people making high salaries still say they feel broke. A “Henry,” short for “high earners not rich yet,” is someone who lives an extravagant lifestyle combined with their student loans has very little money left over. These “working rich” place a strong emphasis on travel, and often limit their spending on food and clothing in order to afford luxury trips. While many have a desire to get their finances in order, very few take appropriate actions to do so.
Henrys are characterized by a higher-than-average income, little or no savings, and a feeling of low material wealth. Most of their earnings go toward current living expenses rather than building wealth with investments.
For additional information on high earners not rich yet, click here.
- Have students conduct online research to determine various financial attitudes and behaviors of people in different age categories and life situations.
- Have students prepare a video that recommending actions to the people described in the article.
- What factors might be influencing the financial activities of the people described in the article?
- Describe possible financial concerns associated with these financial attitudes and behaviors, and recommend corrective actions that might be taken.
Kakeibo, pronounced “kah-keh-boh” and translates as “household financial ledger,” is a method used in Japan for managing personal finances. For over 100 years, this system has helped people make smarter money decisions.
Similar to other budgeting systems, kakeibo is designed to help you understand your relationship with money by recording all financial inflows and outflows. As proven by research, this recordkeeping method emphasizes physically writing your financial activities making you more aware of bad money habits. Kakeibo can help you become completely honest about your spending with the use of four categories: (1) needs, (2) wants, (3) culture, such as books and museum visits, and (4) unexpected – medical expenses or car repairs.
Kakeibo encourages you to ask yourself these questions before buying any non-essential items, or things you buy on impulse:
- Can I live without this item?
- Based on my financial situation, can I afford it?
- Will I actually use it? Do I have the space for it?
- How did I come across it in the first place? (Did I see it in a magazine? Did I come across it after wandering into a gift shop out of boredom?)
- What is my emotional state in general today? (Calm? Stressed? Celebratory? Feeling bad?)
- How do I feel about buying it? (Happy? Excited? Indifferent? And how long will this feeling last?)
In addition, to spend more mindfully, Kakeibo recommends that you:
- Leave the item for 24 hours.
- Don’t let major “sales” tempt you.
- Check your bank balance regularly.
- Spend in cash.
- Put reminders in your wallet – use a sticker: “Do you REALLY need this?!”
- Change the environments that cause you to spend.
For additional information on kakeibo, go to:
- Have students conduct a survey to determine reactions to this budgeting system among people in different age categories and life situations.
- Have students prepare a visual summary of some of the characteristics of the budgeting system.
- What elements of this budgeting system might people find beneficial? What are possible drawbacks?
- If you were to implement this system for your life, which actions would you select to do first?