Why we should encourage young people to save
As a young person it is easy to get carried away with the idea of new clothes, trendy breakfasts, and exciting holidays. Most of the time, money management is the last thing on your mind. What most young adults don’t realise is that they are missing out on a decade of opportunity, where “starting small and starting early” can make all the difference to their future wealth.
As illustrated by this simple chart from research house, Morningstar, the monthly savings required to accumulate $1 million by age 65 increases by over $5,000 per month if you delay your financial management until age 55. By starting at age 25, you only need $405 per month to accumulate $1 million by retirement age. Clearly, starting earlier is the much easier option. So why do we struggle so much to put these thoughts into action?
We can narrow the cause of our inefficiency down to three main factors:
- We procrastinate – Dr Joseph Ferrari, associate professor of psychology at De Paul University in Chicago, suggests that procrastination has become a persistent self-regulation problem in modern Western culture. Since starting is the hardest part of any action, it can often take years before we act on our thoughts.
- We lack the right tools or education – there is essentially no financial curriculum in Australian schools at the current moment, meaning that young adults are graduating high school with no idea about superannuation, basic budgeting, or money principles. Without this knowledge, most people don’t even know where to start, even if they want to.
- We don’t take a consistent approach – even the simplest concepts can be hard to maintain over a long period of time. We need patience, discipline, and long-term guidance to ensure that we make the most of our time.
So, what can we do about it?
Firstly, young people should start to get an idea of their short, medium, and long-term financial goals. When we know our goals, we can then start to establish a complete budget that allows us to create a savings plan that takes into account both our assets and liabilities. By setting goals and establishing a budget, we can start the first steps to a long-term financial plan that takes advantage of the luxury of time.
Although it might not feel like a lot, the simple act of a university student putting away $100 a month is a great way to start. After all, the secret of getting ahead is getting started. So why not get started today? At Solace Financial we are very passionate about encouraging young adults aged 18 to 30 to get ahead (especially the young adult children of our great clients). We’re happy to guide you through the process, so don’t hesitate to give us a call on 07 3106 3106 to set a time to meet with us and start the process of preparing for your future.