Tag Archives: graduation

Graduating to Financial Adulthood

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Graduating to financial adulthood is not about taking a university course or living entirely debt free. It also isn’t about your age. The essence of being a financial adult is that you set your priorities and you are in control of your finances and money, instead of your money controlling your life (or lack of a life). You’re proactive versus reactive and out of control. If you do these well, or even know how to do some of these, congratulations! You’ve graduated!

You have at least one week of income as a basic preliminary emergency fund.

For anything expensive, you shop around before taking on any new debt. This includes shopping for the best interest rate, examining your insurance, scrutinizing your cell phone contract, and monitoring your credit card interest rate if you usually carry a balance. Kids impulse-buy until they’re out of money; financial adults don’t tend to spend until they’re broke.

You have an RRSP and/or Tax Free Savings Account and make a regular monthly contribution. It doesn’t  matter how small it is – at least you’ve started and have traction.

Whether you’re single or married, rich or broke, you have a properly completed will. It may be a $20 do it yourself kit if you’re single, or a lawyer-prepared one if it’s more complex and you have kids.

You know the actual amount of your net take-home pay every month. You can’t control your money if you don’t even know the exact amount you net. Don’t keep talking about your gross pay as if you had that to spend.

You spend less than your monthly take-home pay. You may (at the start) have 10 cents left, or $1,000 – but you’re spending less than you earn. Financial adults figure out how to pay for something, and then buy it, not the other way around.

You have a proper filing system for your financial records. It may only be six large envelopes for each of the last six years, or a ton of file folders (if you’re super organized by choice). Kids get to say “I lost it.” Financial adults don’t have that option.

You have at least two specific and measurable financial goals. Saving more in your RRSPs, or paying off your credit card are not financial goals – that’s a hope and a dream. It needs to be specific: Save $150 a month in RRSPs is specific and measurable. Reduce your credit card balance by $200 or more every month until it’s paid off is a measurable and specific goal that significantly boosts your odds that it will happen.

You do not lock yourself into longer-term fixed expenses by signing contracts for cell phone plans, gym memberships, alarm systems, electricity contracts, etc.

You define “I can afford it” as the ability to pay cash for something, and not by the amount of the monthly payment.

My Grad Commencement Address: About Marshmallows

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If I were doing a commencement address at some graduation this month, it’d be about marshmallows.

That was a Stanford experiment in the late ’60s, that’s been proven to be incredibly accurate, and replicated right up to a few years ago. Researchers gave four to six year olds a marshmallow, pretzel, cookie, or some treat the kids really wanted. They then told the kids they could eat it whenever they wanted. But if they waited 15 minutes, they would get another one to double their treat.

It turns out that this delayed gratification was a powerful and accurate indicator of their marks, their education level, their weight, and their financial success as adults.

Maybe the marshmallow test for graduate age people is 15 days before making impulse decisions. Maybe it’s leaving the credit card at home during the week. Maybe it’s the most powerful financial tool of paying yourself first in savings before spending, or maybe it’s too late, and they’re doomed anyway.

Broke is the new rich. That was the T-shirt a 20-something guy wore at a festival. His age is certainly right in that thinking – even though it’s so wrong and so self-destructive. The millennial generation age 18 to 35 can be forgiven for wondering if they’re ever going to get any financial traction. There are over 85 million of them in North America who, on average have less than $1,000 saved.

There’s a great quote from Shaquille O’Neal: “It is not about how much money you make. The question is are you educated enough to KEEP IT?”

You may think that the average 20 something can’t get ahead. Yes you can! Get your debt under control, or have the delayed gratification to not get into debt in the first place. Start with your first paycheque, or starting this week, have two percent taken right out of your account and transferred into investments. There’s no chance you’ll miss that $60 or so. Then, every six months, up it by one percent. Again, you’ll never miss $20 or $30 until you’re saving 10 percent. Every hundred bucks saved is nearly $9,000 when you retire.

But that’s a BIG marshmallow test that only one or two people from a grad class will embrace. If you’re one of those few people, or want to be, read four short chapters in the Money Tools book and you can get really pretty quickly and easily. If not, remember me as you’ll want to email me in a decade when you’re broke and need help.

The mark you get on your lifetime financial learning isn’t an A to an F. It’s measured in your investment account balance and your debt, and you get a new mark every month for the rest of your life. It might be a mark of minus 30,000 in debt, or a mark of plus $45,000 in investments…

We Graduate Kids Backwards

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Nobody expects 18-year olds graduating high school, or anyone half way through college or university, to be experienced at something. We don’t expect a high school grad to do the rough-in plumbing in an entire new house. We don’t expect a first year university student to do a full set of final architectural drawings, a pre-med student to diagnose a patient, or a future teacher to teach a junior high school class today. Why? Common sense: Because they haven’t finished their education and aren’t trained or experienced. That’s not an issue of “fault,” but an issue of timing and experience. They’ll get there – they’ll be great at it – just not today.

However, with money, credit and financing it’s exactly the opposite. OK, you’re now 18 or older – best of luck with student loans, how to pay for an apartment, how to save, manage your credit card, and/or knowing the five things to watch for before you buy a vehicle. That’s also not a “fault” issue – it’s an experience issue, too. But we know they’ll get experience in their career after high school or two or four years of university before we set them loose, start to expect things, and judge them. That’s all AFTER they’re fully done with schooling, apprenticing, training, and/or an internship.

The first, and pretty big, money, savings, credit and finance decision come at them the opposite way. They happen before they have any experience or knowledge. In other words: Make the decisions, sign the loan, use the credit card, decide on the overdraft, and THEN you’ll get the education. By then, the education is that they’ve messed up and made a lot of wrong decisions. In that case, they’re digging out of a hole for the next decade or longer.

That’s the exact opposite of how they get hired: First comes the education, qualifications, safety training, coaching, more training, and THEN we set them loose. As a result, most of these 18 to 25 year olds never had a chance.

However, in areas where the high school curriculum provides money, investing, and finance courses, the impact is pretty significant. In the U.S., there are eight states who do that. In surveys way after graduation, it shows that these kids have more in savings and investments, are way less likely to be in debt, to use or abuse credit cards, or ever go near payday lenders. They also have lower student loan balances, and pay them off sooner. So the key is to get them informed, because knowledge is power. And that’s back to the premise of not graduating them backwards.  

The Big Decisions (And Pitfalls) After Graduation

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Last week we talked about the dangers of that first credit card for someone who just graduated.

The same applies to banks getting you hooked on an overdraft or line of credit once you have some income. That overdraft will be there for at least a decade, and it’s not like you know how to shop around for the best loan deal or rate.

Car dealers also can’t wait to meet you. How many cars are you going to buy in a lifetime? Five, or six, maybe? Well, the average salesman sells that many in a week!  So who do you think knows stuff and have the upper hand? It’s like bringing a plastic knife to a gun fight – you’re gonna lose, even if you bring one of your parents or a buddy.

So you’re all set. At some point you may have student loan payments for two decades, you’ve got the credit card, an overdraft, and a car payment. Grade five math says that majority of your income is now going to pay all that every single month – forever. So someone telling you save some money is just a pipedream.

Now you’ll be thinking about how to get rich for the next 40 years. But you’ve already forgotten how easy it really is to actually GET rich, instead of just wishing it. When you were still in high school you probably had a summer job. You worked hard, had a goal of what you wanted to do with that money and saved like crazy. Plus, because you had so little money, you were careful how you spent it, right?

But that was before graduation. Now you have a paycheck and access to borrowed money, so you’ve forgotten how to get rich already, and you’re just getting started. Let me remind you again and maybe, just maybe, you’ll do these things to actually get rich, instead of that coming 40-year dream:

Pay cash for stuff

Don’t buy crap you can’t afford and don’t need

Save at least 10% of your money right off the top

In your high school class maybe one or two people will do that. The rest will just be the people hoping to get rich, looking to the government to lend them a hand, or maybe the lottery will come through for them. I don’t know which group you’re in: The going to be rich, or the just ‘wanna be rich’ group.

Maybe someone in your family will print this segment out for you. Maybe I’ll see you at the top, or maybe I’ll get an email from you in 10 years or so to help you with some of your financial mess.

You’re an 18-20 something who is about to make a lot of financial decisions which will impact you for a lifetime – literally.

Happy Grad Season: But Careful With What’s Ahead:

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It’s Grad season again and this year, around 400,000 teenagers will graduate high school. According to Stats Can, there are over 2.1 million kids aged 15 to 19 and 2.5 million aged 20 to 24. But only one or two of those millions matter: Your son, daughter or grandkids.

The good news is that you can rest easy knowing their Grade 12 math taught them to solve trigonometric equations and to graph exponential functions. The bad news: They have no clue about overdrafts, the rule of 72, buying a vehicle, their first credit card, how to budget, manage money, the minefield of student loans or any other financing or investing.

If you’re between the ages of 17 to 21 or so, or have a son or daughter that age group, banks, car dealers, and especially credit card companies are salivating to meet them.

Those companies will do whatever it takes to get their business. Banks, and especially credit card companies, have THE best marketing minds in the country and want your teenager in debt to them – really soon and really deep.

We have a huge emotional attachment to our first credit card. It’s the reason they’ll do whatever it takes to be front and center in your teenager’s wallet. Once they’re first, they own you, and the memories and loyalties are way bigger than the teenager’s first boyfriend or girlfriend – and last a lot longer.

On average, we keep our first credit card for over 15 years. It doesn’t matter that the rate hasn’t been competitive for years, that the perks are junk, or the fees they add on. For this group, the default rates are below average because, in most cases, parents will step in and pay the balance, or at least make the payments.

Why do they target your age group? Because they can’t market much to your parents. Adults already have all the credit cards they need or want. So they can’t grow their business unless they get to you. It’s millions of fresh customers, and bonus: You don’t know squat about credit and the dangers of credit cards, but you do love to impulse buy.

Three Must-Do Tips for Any Grad

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Ah, it’s grad season for two groups: those graduating from high school and heading into the work world or university, as well as those just now graduating from university.

When I ask any adult when they were last debt free, the answer is almost always that they haven’t been debt free since they were your age. When they were 18 or 19 – and they’ve been in debt since then. Sad but true – that will be you.

Getting wealthy comes much easier if you learn to say “I can’t afford it,” and spend less than you earn. When you were still in high school, you probably had a summer job or other income. You worked hard, had a goal of what you wanted to do with that money, saved like a dog, and paid cash for stuff. Plus, because you had so little money, you were careful how you spent it, right?

But now you have a paycheque, and access to borrowed money, which includes student loans and a credit card. So you’ve forgotten how to get rich already and you’re just getting going. Let me remind you again and maybe, just maybe, you’ll do these things to actually get rich, instead of just making that your 40-year dream:

Pay cash for stuff

Don’t buy crap you can’t afford and don’t need

Save and invest ten percent of your money

Maybe someone in your family will print this out for you. Maybe someone cares enough to go over to Mosaic and get you the Money Tools book. Maybe I’ll see you at the top, or maybe I’ll get an e mail from you in five years or so to help you with some of your financial mess.

If you’re graduating from high school, it’s a valuable investment to establish credit. Read the chapter on how to do that and the credit card chapter to understand the rate, perks and limit traps that you’ll be dodging a lifetime.

Plus, leave your credit card at home – don’t pack it in your wallet. The first time you charge a consumable such as gas or food on your credit card and do not pay it in full when the statement arrives you’re in financial trouble – you just won’t realize it or admit to for a long time to come. From there, it’ll just get worse. Miss paying off your balance and it’s twice as hard the following month when the balance has likely doubled. Then, the credit card companies have won, and have you hooked for the next few decades.

If you’re just graduating from university, I bet you’re sick of living like a poor student and ready for some major pent-up spending. The biggest financial damage is done in the first year following graduation. Get the job, get the paycheque, but if you can delay gratification and live like a poor student for one more year, you’ll have an incredible amount of money saved in that year. Once you turn on the spending tap you aren’t going to be able to turn it off again – so just delay it one year.

The question to always ask yourself is: What financial thing can you do today that your future self will be incredibly grateful for?

George Boelcke – Money Tools & Rules book – yourmoneybook.com

Three Must-Do Tips for Any Grad

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Ah, it’s grad season for two groups: those graduating from high school and heading into the work world or university, as well as those just now graduating from university.

When I ask any adult when they were last debt free, the answer is almost always that they haven’t been debt free since they were your age. When they were 18 or 19 – and they’ve been in debt since then. Sad but true – that’ll be you.

Getting wealthy comes much easier if you learn to say “I can’t afford it,” and spend less than you earn. When you were still in high school, you probably had a summer job or other income. You worked hard, had a goal of what you wanted to do with that money, saved like a dog, and paid cash for stuff. Plus, because you had so little money, you were careful how you spent it, right?

But now you have a paycheque, and access to borrowed money, which includes student loans and a credit card. So you’ve forgotten how to get rich already and you’re just getting going. Let me remind you again and maybe, just maybe, you’ll do these things to actually get rich, instead of just making that your 40-year dream:

Pay cash for stuff

Don’t buy crap you can’t afford and don’t need

Save ten percent of your money

Maybe someone in your family will print this out for you. Maybe someone cares enough to go over to Mosaic and get you the It’s Your Money book. Maybe I’ll see you at the top, or maybe I’ll get an e mail from you in five years or so to help you with some of your financial mess.

If you’re graduating from high school, it’s a valuable investment to establish credit. Read the chapter on how to do that and the credit card chapter to understand the rate, perks and limit traps that you’ll be dodging a lifetime.

Plus, leave your credit card at home – don’t pack it in your wallet. The first time you charge a consumable such as gas or food on your credit card and do not pay it in full when the statement arrives you’re in financial trouble. From there, it’ll just get worse. Miss paying off your balance and it’s twice as hard the following month when the balance has likely doubled. Then, the credit card companies have won and have you hooked for the next few decades.

If you’re just graduating from university, I bet you’re sick of living like a poor student and ready for some major spending. The biggest financial damage is done in the first year following graduation. Get the job, get the paycheque, but if you can delay gratification and live like a poor student for one more year, you’ll have an incredible amount of money saved in that year. Once you turn on the spending tap you aren’t going to be able to turn it off again – so just delay it one year.

Finally, there was a great article on the ten choices you’ll regret in 10 years. It includes avoiding change, trying to impress others, and giving up when the going gets tough. I’ll post the link on the yourmoneybook.com site. You should add one more: Not learning from your financial mistakes by denying them…

http://www.trueactivist.com/ten-choices-you-will-regret-in-10-years/

Establishing A Credit Rating for Your Son or Daughter

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As we’re getting near graduation season, I thought it would be appropriate to talk about some student, grad, and young adult stuff in the world of credit.

Let’s face it, our schools don’t teach kids many of the tools that are amongst the most important for financial survival. And, to be honest, many parents don’t really do a good job, either. Not from lack of wanting to, but sometimes just not having the tools and insights themselves. Plus, if the truth were known, lots of parents really hope their kids don’t end up in the same financial mess they’re in when almost two-thirds of households live payday to payday.

One of the most common questions I get is how to start to establish credit for an 18 or 19-year old. But I’m always torn on this issue. In an ideal world, I’d like no teenager to ever have credit. Why? Because it means they won’t borrow, and not borrowing is THE best recipe to financial success.

However, reality is that most of us do want to finance a home at some point in the future, and sadly, many want to finance a vehicle at some point. A credit rating is also something that many employers look to, and a credit report is pulled by most larger landlords or management firms.

There is a large section in the It’s Your Money book on establishing credit. Make this one of THE best $20 grad presents you can give your son, daughter, or grandchild. It’s something they can refer to for years to come – before it’s too late.

Here is one easy and quick way to establishing credit for any young person: Apply for a credit card under your name, with your son or daughter as the second applicant. The card is approved based on your credit rating, while your son or daughter will have their name shown on it. When the card arrives, lock it away. Do NOT give it to your son or daughter to use. Don’t even give them the card number, or they’ll have no problem using it for on-line charges.

Because their name is on the card, it’ll report to the credit bureau with the limit, the length of time the account has been open, and always a zero balance. They key is to get credit established so a credit file gets going. A credit rating is partly based on how long someone has had a credit file, and this will get them started.

Why not give them the card? Because you’re fully liable for the charges as a joint applicant. This isn’t meant to be an experiment in temptation, but an easy way to establish a track record and credit rating. Activate the card, put it far away, and just use it once a year for a $2 or $5 charge, in order to keep the account active.

Two or three years from now your son or daughter has a solid credit rating and what they do with it at that point is up to them. Hopefully, by that time, they’ve learned some financial, credit, and borrowing tools. If so, you’ve done your best. If not, whatever they borrow at that point isn’t your problem, and won’t impact your credit rating.

Make this a priority for a grad present. After all, “graduation” to understanding the insights of finances is something we’ll all use for a lifetime. Maybe it’s for someone graduating from high school or university. Or maybe it’s the rest of us graduating from financial insanity, graduating from not wanting to be broke anymore, or graduating from the years of living on way more than we earn.