As soon as a teen becomes a legal adult, he or she is personally responsible for their financial health and obligations. Some teens may still live at home with their parents and receive some financial support for a few additional months or years.
However, the individual may also be responsible for paying taxes, for paying all debts that he or she takes on and more. Many older adults have the benefit of life lessons to help them manage their finances, but these may have been difficult and expensive lessons to learn.
When young adults are able to learn these lessons from their school or a relative, they may be able to avoid the painful experiences of learning them through their own trial and error.
The Importance of an Emergency Fund
One of the hallmarks of financial health is an emergency fund. The money in an emergency fund could be used to help you avoid taking on unnecessary debt in the event of an unexpected situation.
For example, if you are sick for several weeks and are unable to work, you can use your emergency fund to pay your expenses. This can help you to avoid high interest title loans and other types of debt. Ultimately, an emergency fund can safeguard your finances. The more money that is available in your emergency fund, the greater the benefit can be.
If possible, fund your savings account substantially before you move out of your parents’ house.
The Need to Keep Debt Balances as Low as Possible
Another financial lesson that young adults need to learn relates to managing debt balances. When you are young, it is easy to think ahead about how you may have a much higher income level after you graduate from college.
You may think that you would have plenty of money to pay off credit card balances, student loans, auto loan and other debts at that time. However, when you borrow a substantial amount of money, your monthly debt payments can be burdensome. In some cases, these payments are so high that individuals are forced to live a much lower quality of life after graduation until the debts are paid off. Others may even be forced to file for bankruptcy and to deal with the long-term ramifications.
The Benefit of Living Beneath Your Means
Young adults should also learn more about how to live beneath their means and why it is important. The reality is that living beneath your means can help you to avoid falling heavily into debt. More than that, it can enable you to save and invest more money at a very early age. By doing so, you may take full advantage of the power of compounded interest, dividend reinvestments and more. Many people who dream of retiring early are only able to do so because they had the foresight to begin saving early in life.
While these financial lessons may seem fairly intuitive to older adults, these are common areas where young adults struggle. In fact, older adults may only understand the importance of these lessons through real-life experiences that have taught them the lessons the hard way. When young adults are educated in these and other areas, they can make savvy financial decisions that ultimately help them to enjoy great security in the years to come.