by Scott Hannah
Q: Our daughter is 15 and has an assignment for school that really got me thinking too. She is supposed to interview at least 3 adults in various life-stages about what they wish they’d known about money and personal finances when they were younger. We’re fortunate that we’re doing fine, but today’s kids face even more demands than we did. Our son is 19 and we could have done a better job helping him learn about money, so what tips can we give him now? ~ Sarah
Things most of us wish we knew about personal finance when we were younger: don't use credit cards for borrowing and forget the hot car - get a house!
A: That’s a great assignment your daughter has and one that will hopefully get her and her classmates thinking about their financial futures. In addition to getting their homework done, hearing advice from adults, other than their own parents, will hopefully resonate with them in a relevant way as they begin making their own financial choices.
Here are 5 personal finance tips most people wish they’d known when they were younger:
1. Start Saving Early, in RRSPs Too – This is the Tip Many People Mention First
Kids save long before they spend, so encourage teens and young adults to do the same. In Canada, kids can file a tax return and start creating contribution room so that they can start contributing to their RRSP as soon as they have a job. They will then have a good start on building what they need for retirement before they begin building their family and career. A budget with designated savings amounts helps make it easier to set the money aside.
2. Understand How Credit Cards Really Work
Many people think of their credit cards as their safety net. However, by the time you’ve realized that credit cards and debt are actually a sticky web, you’ve gotten yourself into a tangled mess. The only way to escape is to increase your income, decrease your expenses, or do both; and yes, that might mean making some drastic lifestyle choices. If you need help on getting out of debt, here are a dozen of the best ways.
3. Buy Life Insurance Sooner than Later
Buying life insurance when you’re young and healthy ensures that your premiums are low and affordable. Many policies also have a grandfathering clause, so if life circumstances change your health dramatically, you may be able to take advantage of keeping any insurance policies that you took out when you were younger.
4. Buying a Car Might Mean You Can’t Afford a House
Buying a new car is much more expensive than most people realize, and a monthly payment of $500+ for a car is what you need to save in order to afford the down payment on a house. Most young adults can’t afford two large purchases at a time. Prioritizing which large expense is most important becomes paramount to achieving your goals.
If you choose to buy a new car before buying a house, know that you will probably need to delay your dream of home ownership. Look at your budget carefully and test drive additional payments for 6 months if you decide that you can do both. You might be in for a big shock – or have topped up your down payment.
Related: Should I rent or buy a house?
5. Plan How to Avoid Impulse Spending
Spending impulsively can rack up credit card debt and lead to a lot of guilt, frustration and buyer’s remorse. Make a rule for yourself: if something costs $200, wait two hours before buying it; for a $400 purchase, wait at least 24 hours; and for an $800 purchase, wait at least a week. Anything truly worth having is worth waiting for.
The Bottom Line on Money Advice to Your Younger Self
An often ignored tip that’s applicable to all ages and part of any “advice to younger self” list is to carefully evaluate any financial decisions you plan to make, and to ask for advice before finalizing your choices. Seek out people you trust and sources of reputable information to help you avoid potentially costly consequences. While many teenagers aren’t quite mature enough to appreciate that their parents sometimes do indeed know what they’re talking about, the benefits of hindsight can be hard to ignore.
(This article originally appeared in Scott Hannah's blog on The Province newspaper's website)
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