by Jenny Smedra
Personal finances have become a hot topic of conversation in our house. Last week my family had an interesting conversation at the dinner table when we were discussing tax returns and college scholarships. While we were making our plans and to-do lists, my youngest niece kept a keen eye. She wanted to know why students didn’t learn how to do these things in school. In short, I didn’t have a good answer for her. There are many important financial lessons we should teach the next generation both at home and in school. More importantly, they can also learn from our financial mistakes.
5 finance lessons for the next generation
This question made us all pause and think about our financial literacy. Granted, there were some serious gaps in knowledge that led to major financial errors. My parents and I discussed some of the lessons we wished we had learned sooner. It seems that we had all made some unwise monetary decisions and had many personal stories on the subject. However, there were some who seemed to be a recurring theme. When I asked more friends and family members, here are the five financial lessons we found important to teach the next generation.
1. Always have an emergency fund.
Sometimes life throws curve balls. No matter how much you try to plan ahead, there will be unexpected surprises along the way. This is why you need an emergency fund so that you have cash on hand to cover these expenses. An emergency fund could have got me out of some tough situations, especially when it came to medical bills, insurance deductibles, and car repairs. Having a supply of cash can also prevent you from running up more credit card debt or paying interest on money you borrow.
Financial advisors recommend saving income for at least six months. Even if this is not practical in your current situation, it is better to save any amount than none. You can also look at a high yield savings account that will earn you more interest than traditional ones. In addition, building this fund is a good example and creates the habit of making regular contributions to savings accounts.
2. Learn how credit cards and credit cards work.
As a young adult, I didn’t understand how the credit system or credit cards worked. I thought as long as I saved my money and had enough to pay my monthly bills, I would be fine. It wasn’t until my sophomore year of college that I learned how easy it is to get buried in credit card debt.
Credit cards can be an important tool in building credit. Unfortunately, I became very irresponsible with mine and accumulated thousands of dollars’ worth of high interest debt. I made the minimum payments every month, but I kept getting deeper and deeper into the red. After defaulting on a payment and being turned over to a debt collection agency, I realized I needed to take control of my expenses. Although I couldn’t undo the damage, I created a tight budget that got me out of debt and taught me to live within my means.
One thing that helped me stay debt free was getting rid of multiple credit cards after paying the balance in full. Having too many cards in my wallet was a temptation I didn’t need. In retrospect, I find that the money I spent paying the interest would have served me better in other ways.
3. Start saving for college.
As my oldest niece prepares for the SATs and college applications, she realizes that it is a higher education expensive. Student debt is a huge drain on many of us who have taken out federal and personal loans to pay tuition fees. According to the latest figures, Americans have student loan debt worth more than $ 1.71 trillion. In 2019, students graduated with an average of $ 29,900 in student loans.
When you start your professional career with so much debt it seems like you are fighting an uphill battle. So we all agreed that it was important to start saving up for college as soon as possible. When kids are young, you have time by your side to expand their education savings accounts. Even if you don’t save enough to cover all of your education bills by the time they reach college, we can teach the next generation how to better manage their money and avoid breaking down student loan debt.
4. The earlier you start investing, the better.
One of my biggest regrets is that when I first entered the professional world, I missed some investment opportunities. I was fortunate enough to work for companies that offered their employees many advantages. In particular, I wish I had used the employer-sponsored retirement plans. Not only did I miss out on the free money from their post matching, but also nearly a decade of high returns from the stock market.
Had I used the 401k options or started investing sooner, compound interest would have made thousands more for my retirement funds. However, it is not good to think about things that I should have done. Instead, I applied the lesson to my current financial planning to get things going again. In addition, I can help the next generation to recognize and use the opportunities that present themselves.
5. Keep your car in good condition.
This last lesson comes straight from my father, who serviced and repaired cars for years. Vehicle maintenance is an important part of vehicle ownership. Therefore, you should take care to keep your car in good condition. Not only will this help your car maintain its value when it needs to be sold, it will also help you avoid costly repair bills.
If you maintain your car regularly, you are more likely to catch small repairs before they turn into costly mistakes. As a result, your car will stay in operation longer, which means more savings in the long term. Upgrading or replacing vehicles less often can save you thousands of dollars in unnecessary costs.
Turn mistakes into learning opportunities for the next generation
As we examined the financial lessons we had learned, everyone kept stressing one very important aspect. We all make mistakes and sometimes learn the hard way. But instead of thinking about our mistakes and wondering what we could have done differently, we can use our experiences as learning opportunities. After my dance with debt and financial planning, I am sure that I will apply the lesson and avoid the same mistakes in the future. Additionally, the financial traps we’ve fallen prey to are good lessons to teach the next generation into what Not do.
While these financial lessons were on my family’s list, which do you think are the most important ones to teach the next generation?