Financial Literacy for Young Adults: 4 Secrets You Must Know By Kristin Louis

Having a basic understanding of financial planning is a crucial — but sorely undertaught — skill for surviving the modern world. The younger you are when you start practicing good financial habits, the more secure your future could be. So, let’s take a look at four ways teens and young adults can develop the skills to manage money well — no matter how much they are earning.

Negotiate Better Rates

When you have a good history of making on-time payments and paying down your debt, ask your insurance and credit card companies for better rates. The best way to have leverage for this is to compare quotes with other companies. Often, they’ll offer lower rates to attract new customers, and you can use that to your advantage. For example, car insurance is often more expensive for people under 30, and the costs can vary from state to state. Getting a lower rate can make a real difference. Remember, your car insurance isn’t the only payment you are making on your car. You may be able to negotiate lower percentage rates on your car note.

Put Money Into Retirement Savings

Many Americans are retiring with far less in savings than they need to maintain a comfortable lifestyle. You may think that adding to your company’s 401k plan is unnecessary in your 20s, but the reality is much different. Even putting a small amount — like 4 percent of your salary — can start a nice cushion— especially if your company matches. Try to slowly work your way up to 7 percent in your late 20s and 10 percent in your early 30s. If you can, put 12 percent of your salary into retirement — that seems to be the golden number for many Americans.

Make a Household Budget

Using the 50/30/20 plan, create a household budget that is firm enough for you to develop discipline, but also flexible enough for you to enjoy your lifestyle. Start by limiting the cost of your needs — rent, utilities, groceries, bills — to 50 percent of your after-tax income. Spend no more than 30 percent of your income on things you want, such as Netflix subscriptions, a gym membership, or happy hour on Fridays. If you monitor your spending for a month and see where you go over, you will have a better understanding of what spending habits to change. You can trim some fat by changing memberships to a less expensive gym or eating out less during the week. And, finally, aim for putting 20 percent into savings and toward paying off your major debt.

Protect Your Identity

Reversing the damage caused by identity theft can take months and, in many cases, several years. Creating a solid financial reputation means taking steps to reduce the risk of someone stealing your identity and wreaking havoc on your credit. Be sure you never give out passwords or Social Security numbers online. Very rarely will companies ask for your full SSN; if asked you usually only need to provide the last four digits. Be wary of someone who asks you it in its entirety. Also, be sure you mix up your passwords so if a hacker gets access to one, that doesn’t mean they have access to everything. Finally, consider using a credit freeze, especially if you aren’t actively applying for credit. A freeze means that extra steps will be taken to approve a loan, credit card or major purchase taken out in your name.

Financial literacy in your teens and 20s may not seem like a priority, but not only does it set you up for financial success in the future, but it sets you up for success in other ways, too. Building these skills can help you with self-discipline, long-term goal achievement, and prioritizing meaning and value. If you still want help planning your finances, a professional financial advisor can guide you through best practices for your 20s, 30s and beyond. 

About the Author

Kris Louis is mom to two rambunctious boys. Her oldest is 10 and her youngest is 7. A former advertising copywriter, she recently created parentingwithkris.com, where she puts her skills to work writing about the trials and tribulations of parenting. Kris, her husband, and two boys live in Durham, NC. 

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