Last Tuesday I had an epiphany. While sitting in my first day of personal and family finances class, I realized I am 23 years old, about to graduate from college and I have absolutely no clue how to manage my money.
This wasnâÄôt the epiphany, however. Even more shocking was the realization that I am not alone; in fact about half the people who filled McNealâÄôs first-floor lecture hall that day felt the exact same way. I began asking my friends and classmates if they knew what to do with their money. It turns out there are many students just like me who donâÄôt know the first thing about how to plan for a secure financial future.
ItâÄôs not like I never wanted to learn about money. I have long been secretly embarrassed about my lack of money smarts and, to be honest, quite annoyed with my parents for never bothering to teach me the ups and downs of things like the stock market, investments, retirement plans or even about saving money in general. As it turns out, my parentsâÄô lack of teaching is fairly common.
Catherine Solheim, associate professor in the Department of Family Social Science (FSoS), who teaches courses about money management, said that she has taught many students whose parents never talked to them about how to manage their money.
âÄúI donâÄôt know why that is,âÄù she said. Solheim believes that parents have a tendency to overindulge their children rather than instilling the idea of âÄúsave some, spend some.âÄù
So I asked my father why he never told me what to do with my money.
âÄúBecause IâÄôm not sure my parents ever talked to me about money,âÄù he said. As it turns out, the taboo money-conversation problem spans generations. âÄúThey said, âÄòsave some for a rainy day,âÄô but never talked strategy,âÄù he said. As a result, my dad will admit he doesnâÄôt have a really solid grasp on money management either.
Parents not knowing what to do with money themselves is a common reason why the conversation sometimes never happens, Sharon Powell, professor of personal and family finances, told our class last week. Other reasons students mentioned were that parents thought they were teaching their children financial independence by leaving them to be on their own. Others said their parents took the view my father did: âÄúI figured in this day and age, someone else would teach you âĦ like a course you could sign up for.âÄù Lucky for me, IâÄôm one step ahead of him.
For many students, however, it takes a financial misstep before they start thinking about learning how to handle finances. That may mean maxing out a credit card, finding oneself in the red after overdrawing your account or not being able to pay a bill on time.
Solheim said that the students who wind up in her money management classes are usually juniors and seniors who havenâÄôt thought about money management systematically in terms of analyzing what their spending patterns are.
âÄúThey mostly just kind of spend âĦ and as a result are not really in control of money,âÄù she said. âÄúUnfortunately I see a lot of debt at that age, which is really a commitment of future income.âÄù
Of course, even the best money managers can run up a lot of debt during their college years. Experts in FSoS (along with every college student in America) agree that it is difficult to get an education without taking out student loans these days. Even so, while large amounts of cash pouring into your bank account sounds pretty cool, it is wise to borrow only as much money as you need to get by for the year.
Taking into consideration the amount of debt you hold before you walk is more likely to benefit your long-term financial goals than waiting until deferment ends.
âÄúI think itâÄôs a problem if youâÄôre not looking a little forward at 20 and 21,âÄù Solheim said.
Solheim said she has taught many students who have great financial goals, such as home ownership or travel plans, but often do not know how to get there. This is where learning and planning are keys to success.
The great thing about money is if you put a little bit away now at a young age in stock or investments, you have time on your side. âÄúNow that money will go a lot father than if you waited until you are 40 and you think you have money saved,âÄù Solheim said.
Perhaps the most important piece of advice from the experts in FSoS is for students to be very conscious of what they are spending.
âÄúThere is so much spending that happens unconsciously,âÄù Solheim said. Students who take a little bit of time to track what they spend are often surprised at how much money is spent on small things that could be saved instead.
âÄúI always say, âÄòwrite it down,âÄôâÄù she said. Students who do this are more aware of what theyâÄôre doing and also might start making decisions to forgo spending something in the present in order to reap better rewards in the future.
Another good place to start could be simply initiating the money conversation with your parents.
âÄúI donâÄôt think itâÄôs ever too late to have that conversation,âÄù Solheim said. âÄúItâÄôs simple; start by saying, âÄòIâÄôm a young adult still learning, and I would love to hear about your experiences with money.âÄôâÄù
Even if your parents donâÄôt have a wealth of knowledge to present you with, you might gain some insight as to why you hold certain money values or why you handle money certain ways. I, for one, am no longer nearly as annoyed with my parents, knowing that the reasons I didnâÄôt learn about money were not because my father didnâÄôt care to teach me.
If you are interested in figuring out your future finances, check out the local self-help section at the library, talk to your rich uncle, or do like me and enroll in one of the several classes about money management offered here at the University of Minnesota. After all, youâÄôve paid to take snowboarding, Spanish and the history of rock and roll; you might as well learn this important life skill. Before your graduate college, be sure you get your moneyâÄôs worth.