With the infinite amount of relevant life lessons that the new generations must be taught, choosing which topics to cover may be difficult. Fortunately, most schools will incorporate the basics of general knowledge while the parents are usually responsible for imparting wisdom about things like respect, manners, courtesy, and so on. Sometimes, however, some important lessons can get lost in the process and cause young adults to grow up at a disadvantage.
A great example would be a practical life skill like finance. Although various levels of education will touch on math and other logic-based subjects, those who are not specifically focused on finance will seldom get to learn any of it. So, what are some of the most important concepts from this field that younger generations should be aware of?
A Dollar Today Is Worth More Than a Dollar Tomorrow
According to a junior associate at the Genesis Group, LLC, Connor Mulvey, one of the most significant ideas that the entire practice of finance was built on is the time value of money. In simple terms, it is a rule according to which a dollar that someone has today will be worth more than a dollar that they will have tomorrow. How so? Well, the money that one currently possesses is considered to be eligible for investment. That means that the person could place it in an investment vehicle and accumulate interest. So, the dollar that is not invested will fall behind over time, both comparatively to inflation as well as the missed gains from investing.
“Nothing Can Be Said to Be Certain, Except Death and Taxes”
When Benjamin Franklin said those mentioned above in 1789, he probably did not expect his words to hold true more than two centuries later. Nevertheless, one of the ultimate facts of life is that there are very few certainties. Death and taxes, however, are some of the very few things that one can assure will take place. In translation, younger generations should learn some basics about the taxation system in the United States before it is time for them actually to file their first return. Doing so will help them later on when they may be able to file without having to rely on a third party.
Not Having Credit Cards Does Not Mean That Someone’s Credit Score is Safe
Chicago native Connor Mulvey is one of the many people who witnessed an all-too-common misconception that pertains to credit cards. Namely, millions of Millennials are under the impression that their credit will be unaffected absent credit cards. In reality, however, this holds very little truth. The reason why is that someone’s credit is based on several factors that are not limited to just credit cards. Instead, it also takes into account the age of the person’s credit, collections placed against them, open loan accounts, and so on. Thus, not having a credit card does not guarantee that the credit score will not be adversely affected by other spending activity.
Retirement, Saving, Investing, and Borrowing – Lessons on Interest
Another important lesson that the field of finance is notorious for revolves around the interest. The entire idea behind this invention was to incentivize people to part ways from their capital. Consider retirement or long-term investing, for instance, as a good depiction of how interest affects someone’s hard-earned money. Over time, interest is what helps their money grow without them having actually to do anything. Thus, these are the situations where the investor is going to look for higher interest rates that do not carry too much risk. Borrowing, on the other hand, works in the same way from a reversed perspective. Taking a loan from a bank should only be done if the interest rate is not extremely high as this will translate into a good deal of accrued interest owed over time.
Liquidity Saves Lives
During the Great Depression in the 1930s, countless people lost their lives once the stock market crashed and their assets evaporated. Although there were a lot of factors that played a role here, people’s inadequate back-up supplies of capital that could help keep them liquid were non-existent. So, new generations must know that it is important always to have some additional capital that is left on the side. This approach will minimize the odds of succumbing to any downturn in the economy to the point of no recovery.
Other relevant concepts that deserve mention include things like diversification, portfolio strategies, salary negotiation, non-cash compensation, and so on. Nevertheless, most of these types of topics are covered once people get to their first employer or late in their college career. So, starting with the previously mentioned five points is a great way to get ready to make smart financial decisions.