Hot Features
Premium
Register for Free to get streaming real-time quotes, interactive charts, live options flow, and more.
Money is considered a taboo subject in many homes, nobody talks about it until it’s already too late and few families take the time to offer proper financial education to their children and teenagers. This situation translates to young adults who don’t have a basic toolset of managing their expenses and savings, living in an environment where the cost of studies is rising exponentially and getting a good score seems more complicated than getting through college.
It shouldn’t be like this. Families, educational facilities, and credit companies should work together to provide the new generation with know-how and insights for making the right decisions. Here are a few ideas on how to make this process more manageable.
A New Life
Any recent graduate faces one of the most significant decisions of their life. What next? Where should they settle? What jobs are the best for the years to come? Apart from the excitement of having all the opportunities ahead, there is a major financial concern. With an average debt north of $30,000, it’s hard to talk about actual freedom.
When selecting a city to settle in, think about the following:
- Employment opportunities- even if you need the money, don’t accept underemployment since it will be harder to grow out of an unfit role and it will do nothing for your resume.
- Cost of living- While rent and food should be first on the budget, look at other indicators, such as the price of transportation, take-out, and amenities (development centers, gym, bars), since settling is not about survival, is about enjoying life and growing to your full potential. Think about your priorities when deciding to rent alone or with roommates.
- Quality of life and workforce- select a city which is bursting with recent graduates. Even if the job competition is higher, the development perspectives are also better.
The Credit Score Problem
This all-powerful number can make a huge difference in a person’s life. It governs the access to money, the total cost of your credits and even your prospects to get certain jobs, especially in financial departments. Unfortunately, the younger generations have some of the lowest scores. The factors which influence this situation are both the formula used to compute it and the fact that a quarter of young people don’t understand how the algorithm works.
The main problems are related to credit history, accounting for 15% of the overall score and the fact that student loans add to the debt amount, which impacts 30% of the FICO. Apart from these, there are countless myths, which can be dangerous.
The key takeaways are:
- Always pay the bills on time, starting with the credit cards to avoid having any debt sent to collections. While medical bills take up to 6 months to be sent to collection, credit card debt is deferred after 30 days.
- Keep track of any outstanding balances. A free copy of your credit report could show some skeletons you still have in your debt closet.
- Don’t be afraid to negotiate and ask for a different repayment schedule. Any credit company will be happy to get their money later than never, but you have to communicate and keep your promise.
- Don’t hunt for credit when you don’t actually need it or extend your scouting time over a month. New credit is responsible for 10% of your score and the need for liquidity indicates that you might be in trouble.
The Default Risk
Apart from the credit score problem, the next pitfall for young people is the default risk, which generally means not paying your outstanding debts for more than 270 days (9 months), but times differ according to the contract. This translates to a stain on your credit score for the next seven years, talk about the real broken mirror effect.
Defaulting a payment comes with more bad luck. A recent article shows that possible downsides include:
- An increase of the total balance, including unpaid interest and other fees
- Becoming not eligible to get financial aid if you default on a federal loan
- Other, more severe problems, according to individual states’ legislation like losing professional licenses, having a driver’s license suspended, losing your diploma and more.
Considering that repercussions can be severe, what is the best solution besides staying on track with payments?
Some people could consider the option to declare bankruptcy just to get this behind them and start a new life. However, you have to prove that there is no feasible way of paying, you made all efforts and based on a situation that will continue for a long time there is no foreseeable way that you can pay your debt.
You have other options like temporary relief, to regroup, but your account still adds up with interest so you’ll have to pay more when you get back to the problem. All in all, defaulting should never be on your list, you should look at other options like consolidating, refinancing from a reputable company like Crediful or just managing better your current finances through thigh budgeting.
The Retirement Problem
When you are a fresh college graduate, one of your last concerns is your pension plan, especially if you’re just starting out your career as an intern. However, the earlier you start, the more time you have to get to retire with a million dollars. Even if you don’t get there, you will still have a decent amount to live on.
Since most young people are keen on user-friendly technology which makes them worry less about what happens behind the scenes, a great option would be to choose a robo-advisor to manage your investments for the silver days. There are countless options out here, just be sure to pick one which is backed-up (https://www.crediful.com/futureadvisor-review/), as most require a minimum investment of a couple of thousand dollars and 30-40 years is a long time, a lot can happen.
Of course, for those who prefer a more hands-on approach, there is the option of a brokerage account (https://www.crediful.com/brokerage-account/) where you have more control over the companies, stock or markets you choose in your portfolio. For example, you can select only those with a sound CSR policy or those which are green and transparent towards their carbon footprint.
Final thoughts
Getting a good start in financial life is essential, and it is never too early to think about savings and retirement. The younger generation has to manage and repay the most massive debt amounts in history, and they need all the help they can get, both regarding education and access to the latest financial tools and services.
