Sharing Financial Tips with Graduates

I had a great opportunity to join the Kutztown Area School District graduating class of 2025 last week. As they finish up their class schedule, they participate in a “Life Essentials” skills day where they break off into groups and rotate topics throughout the morning. They are taught automotive maintenance, etiquette, first aid, and yes, financial literacy. It’s one of the school district’s final attempts to instill some “real world” knowledge in the students before they walk across the stage this week and start their lives as responsible adults. 

This is the second year I’ve been asked to present, and I truly enjoy the opportunity to engage with them. As I reflect back on the day, and what it will mean for me to have a graduating senior this time next year, here’s what sticks out to me that might be worth sharing with your kids/grandkids/young adult friends. 

• Avoiding too much debt is the first lesson I share. I think it’s really hard for an 18 year- old to grasp the magnitude of compounding debt. We talk about how a $40,000 car over 60 payments at 8% actually costs $49,000. And think about how that pales in comparison to the cost of a four-year college for some students these days. It’s important for them to understand that loans aren’t free money.   
• Build savings by automating the process. I try to make clear that financial health can be very, very simple. Just spend less than you make and save the difference. That formula works, no matter how much income you make. I also emphasize how to do that – automate. Whether that’s participating in an employer retirement plan or setting your checking account to “fund” a savings/investment account once a month, the key is to not put yourself in position to make that decision “am I going to save my money or spend my money this month.” We will lose that battle with ourselves. So just automate your savings. If the money isn’t in your bank account, you won’t spend it.
• Cover yourself. As many students will immediately enter the workforce, I do make the point that many companies offer “benefits” beyond the paychecks that they provide. This isn’t to be ignored. While it’s not uncommon to feel like Superman at such a young age and dismiss the things in life that can go wrong, the cost to insure paychecks and against a premature death are usually dirt cheap at that age. While it’s not the fun part of the presentation, I emphasize that it’s important to protect what’s important to them which means they should get the coverage they need, pay as little as possible, and then get rid of it when they don’t need it anymore. Read through those benefit packets!
• Start early! I share a graph that shows how a 25-year-old saves $5,000/year (which we break down to just $14/day) for 10 years and then just stops. 30-years later at age 65, after getting an 8% return compounding, she has close to $800,000 to her name. Saving $50,000 to get to $800,000 is not a bad trade-off! We then compare that to a 35-year-old. He starts later, saves the same $5,000/year, but does so for then for 30 years until age 65. At the same 8% return compounding, he only has a little more than $600,000 to his name. He saved 3x the amount of money for 3x the amount of time but still was $200,000 short of the person who simply started earlier in life. This illustration seems to hit home for the students. Because we end that discussion by me simply pointing out that the 25-year-old (in this example) stopped saving at age 35. Imagine what her balance would have been had she not stopped the good habit she was in and just kept saving $14/day for the next 30 years. 

Like many things in life, getting started off on the right foot can make a huge difference on your ability to meet your end goal. Life experience is not something any graduating senior will have. So that’s where you and I can play an important role in sharing some wisdom. These are 4 really simple concepts that can make a huge difference in their lives. 

Good luck to all the graduates of 2025!

Ticket #T009153

Investment Advice offered through Great Valley Advisor Group, a Registered Investment Advisor. Great Valley Advisor Group and Haas Financial Group are separate entities. This is not intended to be used as tax or legal advice. Please consult a tax or legal professional for specific information and advice.

Resources:

https://www.stlouisfed.org/open-vault/2018/september/how-compound-interest-works