BY SASHENKA PAATZ
No matter the program, location or length of the post-secondary education students are enrolled in, they have most likely never had a compulsory course on personal wealth management. Who decided that this subject was not important for young adults to learn? We could spend a long time placing the blame on various people, organizations or even the government, but that would not resolve the issue.
Instead, let’s face facts. Millennials, roughly defined as young people aged 15 to 35, make up about 27 per cent of the population in Canada, says Environics Analytics. This generation has become the largest portion of the workforce, according to Canadian Business, yet they have the least amount of knowledge on how to look after their finances.
So, here are a few simple lessons for you to help you become a wise, money-making millennial.
Lesson #1: Speaking Money’s Language
As in any subject, it is important to learn the vocabulary terms that appear in the financial world. Those who have a higher level of understanding in financial wording often show an increased ability to make good financial decisions, according to the Royal Bank of Canada (RBC).
Unfortunately, the average age at which people start seriously learning about financial terms is 26, says RBC. It is up to each individual to seek out guidance and information on things such as debt, budgeting, saving and investing in order to make financial choices. On the bright side, there is plenty of free and reliable information for those who have not yet learned. The Canadian Financial Literacy Database is a great place to start.
Lesson #2: The Money You Don’t Have
The first term you must understand is debt. Debt is money that you have used but have not earned, and therefore it must be payed back. This is something that most millennials have trouble with. It can be debilitating and scary to tackle, especially without a full-time job. To wrap your mind around your debt, you must understand what kind of debt you have. This knowledge will help you work toward paying off your debt most efficiently.
The thing is, not all debt is equal. Interest rates are the main denominator when it comes to paying off debt. For example, credit card interest is usually very high and as such, should be payed first before debts like student loans which can be tax deductible. Once you know the order in which you will pay off your debts, you can come up with a payment plan that works for you within the perimeters of a certain period of time. Just remember, the longer you take to pay off your debt, the more you will end up paying in interest.
Lesson #3: Compartmentalizing Your Money Spending
To pay off your debt efficiently, you must have a plan for how you are going to spend the money you do have. This is where budgeting comes in. A simple way to do this is to get a budgeting app such as Empower or PocketGuard. These tools will enable you to categorize how much you should spend on the basic amenities of life such as food and clothing.
It’s important to set realistic spending goals so that you will have money left over both to continue paying off your debt and to save. Most of the apps available track how much you spend in each category so that you can see where your money is going and how you need to change your habits to save more money. Though these apps can be helpful, ultimately it is up to you to decide when to spend money and what to spend it on. Do yourself a favour and get rid of your credit card until you can trust yourself to spend responsibly. Self-control is key.
Lesson #4: Set that Aside for Later
Why emphasize saving? Well, putting a portion of your money aside helps you down the road to make bigger and better purchases, as well as have financial stability. We all have short and long-term goals that require money. Maybe you’d like to own a house or a car in the future. If you already have the money to put a downpayment on these purchases, you won’t have to re-live the kind of debt you may be stuck in now.
Even if you do not have particular goals, money should always be set aside for accidents that may happen or unexpected expenses. A separate savings account should also be made for your retirement fund. It has been said that you can never start saving soon enough for your retirement, and this is more true today than it ever has been. Most companies still have an employee pension plan, but with the rise in freelance work and the gig economy, this may not be a viable option for much longer. Automatically putting a few dollars out of sight in a secure savings account every month can go a long way.
Lesson #5: Investing in the Future
Investing is similar to saving. When you invest in a company or special banking account, your money increases or decreases depending on the worth of that business or account. Though saving is more important and secure, investing can also be beneficial.
There are many different ways to invest your money, but as a student, it is most prudent to choose low-risk options. The most popular option with no risk is a tax-free savings account, according to RBC. This is money that you can make interest on, as well as avoid paying taxes for. Your money can literally work for you, instead of you working for your money.
Money management doesn’t have to be as overwhelming and complicated as it seems. In fact, it can be exciting when you begin to see your hard work paying off. It just takes a few clicks to find out how to use and optimize the money you have. This is one lesson you don’t want to forget as you approach the rest of your life.