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“If you buy things you don’t need, you will soon sell things you need.” – Warren Buffet.
With the lack of financial literacy in the standard school curriculum across the nation, many are left unprepared for the adult world once they graduate. Students find themselves searching Youtube and Google for unrealistic goals like “How to Become a Millionaire in 3 Weeks” or “How to own a Lamborghini by 20 years old". Instead, they can take the opportunity to complete simple actions to develop a better understanding of working, banking, and all of the other adulting they'll have to do in the near future. Here is how you can prepare now:
Most students don’t understand that credit score plays a huge role when renting an apartment, buying a home, and even when applying for a new credit card or job. Credit scores take months to reach a comfortable number, and it’s incredibly efficient to start reaching that score now when there aren’t many risks at a young age.
The best recommendation is to get a credit card and only buy one cheap item per billing period (like a pack of gum). That way, students do not have to carry any tremendous balances that they can’t pay, and this will ensure a higher score if consistently done.
If students need to buy something urgently, I recommend that they use their debit card, not their credit card. Students should try and abide by one golden financial rule: only use the money that you have. That way, students are incentivized to spend only what they have, not what they will eventually have. This produces a better understanding of smarter spending, something teachers never taught them.
Compound Interest is considered the eighth wonder of the world for a reason. Pretend two high school graduates decide to learn about investing (call them Students A and B). Student A decides to set up a Roth IRA with Vanguard as soon as they turn 18. Student A deposits the maximum amount of money anyone can put into a Roth IRA each year($6000) and constantly does this until they retire at 65. Student B turns lazy, and does the same plan as Student A but once they turn 21. If both students invest in the same funds and have an average annual growth of 8.5%, here are the following portfolios of both students when they retire at 65 years old:
Student A: $3,194,763.88
Student B: $2,485,882.38
Student B waited 3 years to start investing after Student A, and Student A ended up retiring with over $700,000 more. The more students wait, the higher the opportunity cost. The best time to invest was yesterday, the next best day is now.
Where should students invest? That is where they take the responsibility to research on what suits them best. Check this article out to find which investment apps fit you. There are numerous amounts of great platforms for students to try, but everyone should first research the risks and benefits of trying out each firm.
Of course, all students are told to save by their parents yet they never do. Here are two different perspectives that students should take into consideration on saving:
Remember Students A and B? Well, they’re back. Student A and B both want to buy their first car on craigslist for $5000. Both the parents of Student A and Student B want their kids to have their own cars at 21, which is in three years for both of them. Student A and Student B both work at a local store, where their monthly incomes after taxes are both approximately $1000. Student A creates a financial plan where they first save 40% of the income and put it into their bank account, invest 40% of the money into their investing apps, and then enjoy whatever is leftover ($200). After three years, Student A saved $400 for 21 months, which gave them $8400 in savings to buy a car. Student B decides to first spend 80% of their income, then invest 10% into their investing apps, and then save the remaining money($100). After three years, Student B is left with only $3600 in savings to buy a car. The moral of this section is if students save like Student A, they wouldn’t have to end up buying a Prius like Student B.
For students who are still worried about investing, saving can still get the job done! If students only decided to save and not invest, they should then proceed to save a bigger percentage. If Student A starts off with $0 in their bank account and starts saving 40% of their $1000 monthly income for 30 months, they will then end up with $12000 in the bank account. That is more money than if Student B invested $100 per month for five years with a $3000 initial investment and an 8.5% annual growth.
Saving is critical, and it is important for teens to start developing these habits.
The best way to set up the beginning of a successful financial future is for students to do the research themselves. Students want to find the lazy way to reach their goals, watching both youtube ads and Netflix shows with rental Lamborghinis. Students can research each topic discussed above, which can help educate them more on not only these subjects but the overall financial world they now live in.
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Although financial literacy never came up in school, I am certain that at Copper: we will be the financial tech and literacy backbone for teens across the country and provide the resources needed for parents to help us in this cause.