Teaching Strategies- Teaching Young People to be Smart with Money

It is in our human nature to dream about improving our wellbeing. It is also normal to have the desire to get wealthier even from an early age.

We all know the story of Warren Buffet, who bought his first stock at the age of 11. However, there are not so many people among us who have that “Buffet-like motivation” to actually do something – be it to create a financial plan, improve our money management literacy, or start saving.

Although we often visualize the results from getting rich, we also underestimate the importance of taking a steady and progressive approach towards reaching our final goal. 

And the best way to overcome this mistake is to implement teaching strategies to teach young people how to be smart with their money.

The Situation With Young Peoples Finances

The best way to understand why is it so important to be financially literate and proactive when it comes to saving and working towards a particular financial plan, is to take a look at the current situation around the world:

  • UK – 50% of the population in the age group 22 – 29 have no savings at all
  • US households – the FED estimates that the average household has just $11,700 in savings
  • US millennials – Americans born between 1981 – 1998 have saved $2430 on average

To make matters worse, it is worth noting that the share of millennials with no savings at all is on the rise. For example – in the USA, in 2016, there were 31% who had $0 in their savings accounts, compared to 46% in 2017.

Other statistics paint an even darker picture, pointing out that the average net worth of individuals in the age group of 22 – 30 in the US is negative, starting at -$39,984 and going to -$1989, respectively.

The reason for that is rooted in the hefty student loans that young individuals proceed to pay out up to a decade after graduation.

This long-term planning is usually based on the belief that good education will help the student land a well-paid job. However, in the fragile economy we currently live in and the unstable political situation, these guarantees can often be misleading.

This is the reason why…

Developing Teaching Strategies for Smart Money Habits is Indispensable

Financial literacy is crucial for the wellbeing of the individual. It is not surprising that industry experts claim that people without savings basically lay on the mercy of the political mass, 20, 30, or 40 years ahead.

Although the current economic climate and social structure may save those who live on the edge and do not want to spend (or do not have the chance to), in the near future, it may not be able to bail them out anymore.

In order to solve that problem, teaching strategies for financial education need to be developed at a young age.

Teenagers should learn the basics of saving and focus on making their money work for them. This will bring plenty of positives, such as:

Long-term Comfort

The truth is that even individuals with small periodical contributions to their savings accounts can manage to significantly multiply (via compounding and other techniques) their wealth in the long-term.

Retirement calculators can do an excellent job to help you track your progress and let you know where you stand towards achieving your long-term goal (let’s say – retire at the age of 45 or 50).

Add to that the employer contributions to your pension fund, and you will find out how via compound interest, you can significantly increase your pot of money in the course of 20 – 30 years.

However, the problem here is that millennials are not so willing to plan for the future.

They usually prefer maintaining a better lifestyle now, without putting too much emphasis on retirement planning. Yet, no one knows how long will he be able to work or how different the job market will be after a decade or two.

All this means that having a good capital buffer is always a good idea, especially in the rapidly changing world of today.

Additional Passive Income

Teaching strategies for young people on how to be smart with their money should not be related only to saving. In fact, saving is just as significant as investing.

Thanks to the power of robo-advisors, nowadays, it is easier than ever for young people to start investing.

Even without the help of automated investing services, nowadays, it is a matter of an hour or two for one to set-up an account with a broker and buys the market via an ETF.

For example – the SPY (SPDR S&P500 ETF)’s annual total returns for the last 15 years tell a pretty convincing story.

In 10 out of 15 years, the ETF had returns of at least 10%, with 4 of them closing the year with 20% gains or more.

Such results are way better even when compared to the performance of most robo-advisors. So, in reality, it really is not that hard to invest successfully and multiply your income.

SPY’s performance over the last 15 years (Source: Yahoo Finance):

Teaching Strategies

To take teaching strategies and learning to be smart with your money even a step further, you can make use of risk-free trading simulators and paper trading accounts.

The advantage:

You can apply the investment styles you learned about without any risk. You will see how your investments work, and your practice to place your first orders of stocks, ETFs, Index Funds, and other asset classes.

This can be super helpful for young investors not having any experiences in the financial markets yet.

Resilience to Shocks

Having a capital buffer aside makes you more resilient in times of economic shocks. Initial preparation by having some liquid cash (emergency fund) at your disposal is crucial in cases when an individual loses his job, or a massive recession takes place.

Apart from that, the comfort of having saved cash means that you can easily navigate the economic busts by investing in commodities or even exotic asset classes, based on their momentum.

Conclusion

Developing teaching strategies for young people on how to be smart with their money starts with parents and caretakers. Like it is with almost everything else, many young people rely on adults to shape their example for the management of personal finances.

However, it is not only the family that should spark an interest in sustainable money management in a particular individual.

In fact, at some point, everyone should make his own choice. And in the world of social media, the worst thing to do is to compare yourself with others as it may potentially lead to self-doubts and disbelief.

What young people should remember is to focus on their own goals. There is no precise plan for one to follow, nor there is any deadline – each individual is in a race with himself and not anybody else.

Saving just for the sake of having money should not come at the expense of sacrificing happiness and personal satisfaction.

Although the sooner you start saving/investing is better. Now your journey begins.

Leave a Comment

Your email address will not be published. Required fields are marked *

Scroll to Top