Many college graduates today feel they are underprepared for the financial stress placed upon them post-graduation. The reason? Many were never taught about financial literacy. According to a 2023 report by the SPARK Institute, an advocacy organization directed toward the retirement plan industry, “Just 18% of high school and 26% of college students rate their financial knowledge “somewhat high” or “very high”. Only 46% of high school and 55% of college students think they know enough to reach their financial goals.” The bigger problem lies in the fact that most students aren’t even sure where to start gathering reliable information. The growing instability of the market and lack of career stability only create more reasons for financial literacy to be at the forefront of youth education programs.
To shore up financial skills, Barry Dampf, a certified CPA and financial advisor for Clearpoint Advisors with over thirty years of experience, recommends five financial concepts to master before the age of 25. According to Dampf, the five key financial concepts to master (in particular order) before the age of 25 are as follows:
- Developing a savings plan
Dampf states, “Young investors will gain a big advantage by starting to save early.” Each of these five concepts ties into each other to build the bigger picture of how to secure a stable financial future for oneself. Developing a savings plan is step one. Start small – there is no trick to getting rich overnight. The $50 you decide to put into your savings instead of a crazy night out with friends could be worth many nights with friends later in the future.
- Developing a budget
It’s unlikely that anybody will be able to save money without understanding how much they are spending, and where most of their money is being spent. Developing a budget in which you sit down and take a look at how much money is coming into your possession, and then calculating how much is going out – and to where. This will allow you to gain a better understanding of where tweaking is needed in your spending habits.
- Concept of time value and money
To understand compound interest, you first need to conceptualize how time and money work together. It’s hard to imagine that $1,000 dollars in today’s economy can be worth $10,000 ten years from now if you understand how time and money work together through the concept of compound interest.
- Understanding compound interest
Dampf states, “Money will compound exponentially over time with periodic deposits.” Whether that be in a savings account within a checking account, or a more complex brokerage
account through companies like Charles Schwab, TD Ameritrade, or Vanguard, through the periodic investments that you make in these accounts, money that you start with is worth much more over time than in the present. Dampf continues, “The Rule of 72 states that money will double in 9 years if it’s earning interest at an annual rate of 8%”
- Choices of investment vehicles to accomplish your savings goals
So how exactly can you grow your money? Well, that’s up to the individual. The key is to inform oneself about the risks and rewards of said investment strategy and portfolio makeup. More risk equals more potential rewards but increases one’s potential to lose money quicker. Investment vehicles include the following: Mutual Funds, ETFs, Stocks, Bonds, and other money markets. It’s best to do your own research on the risks and rewards associated with each type of investment to figure out what matches how much risk you can handle in a volatile market.
These ideas serve as stepping stones, guiding you toward financial security and independence. Of course, seeking out further education and guidance from experts can provide insightful perspectives and support during the journey. Undergraduates may confidently handle the complexity of personal finance with persistence and a commitment to learning, paving the way for a wealthy future full of opportunities.
