What Financial Things Do You Know Now That You Wish You Knew Starting Out? | brokeGIRLrich
The last few years I’ve been really lucky to do a guest lecture on financial literacy with a college out in California. I really enjoy it. I get to share some basic financial literacy knowledge and I get to hear from some soon-to-be college grads about what they are worried about when they graduate.
We usually begin with a like 45 minute presentation before getting into specific questions. I suspect this is because sometimes the students literally don’t even know where to start with their finance questions.
So now I’m asking the personal finance community, what do you wish you knew when you were 20-22? And bonus points if particularly applies to freelance life.
I’m still a little salty no one ever explained compound interest to me.
I know there are lots of reasons people may not save, but when I look back at my first jobs in high school and college, if anyone had explained retirement accounts to me, I really think I might have set aside 10% or so into them. I have always been a fiscally cautious person.
I also find it completely insane no one ever explained credit card interest rates to me. I mean, it was genuinely dumb luck that I barely ever carried a balance and that I was paying enough attention the first time or two that I did have to pay interest that I immediately was like… nope, we are not living this life. I also grew up in a home where credit card debt was a major problem and I did not want that to be my whole future.
I think Health Savings Accounts are the closest thing to money magic there is and I never really hear people talking about them. To be fair, they weren’t introduced until 2003, and didn’t spread in popularity until fairly recently. But I think they should be a regular part of any financial literacy program and I don’t hear them mentioned much.
I think there should be more emphasis on the personal part of personal finance and how important forward thinking and knowing your goals is. And that it’s ok to change your mind over time, but spending some time to think about the next 10-15-20 years of financial goals can help set you on the right path.
Decided you want a house and having nothing at all saved seems like a sad day. If you had identified a goal of owning a home a few years earlier, you could at least begin to make a plan to save for it.
There are things that still confuse me now. Finding a good mortgage rate. Remortgaging. Taxes (they will never not be at least a little confusing). Long Term Care Insurance. Most insurance, really. Literally anything related to healthcare.
But at least some of the things I mentioned earlier can start to build a good financial literacy foundation.
I had the advantage of a financially-savvy dad, so I knew about the rule of 72 (related to compound interest) and the importance of only using a credit card if you can pay it off (or for a true emergency). I agree that those are high priority.
I have mixed feelings about HSAs. They work great for young, healthy people with minor (or no) medical issues. As a doctor, I see lots of people (many young) who end up with very expensive medical problems, which can cost them to reach to the out of pocket maximum (often 5-figures) quickly.
Showing my age–broad-based, low overhead index funds weren’t popular (possibly not even available) when I started investing. And you needed to buy 100 shares of a stock or else pay a premium. Nowadays people can start investing with very low minimums. That’s way cool. Also, reminding them to set their accounts to (a) reinvest dividends and (b) automatically invest their fund contributions. I hear about people putting aside money in a retirement fund, only to find out a few years later it was left in cash!
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Are you concerned about HSAs because you think young people should invest in insurance with a lower deductible? Because it seems like even if you need the money right now, you still get a tax benefit from running the money through your HSA first and the money is there if you do need it, even if it’s before retirement.
My concern for HSAs are that I have medical issues which require moderately expensive medications. The one year that I tried an HSA, those meds cost much, much more than I thought–about $3600 a year (instead of maybe $400 in co-pays).
I didn’t really see much benefit in the HSA for me: the monthly costs of insurance were the same, and any employer contribution to the HSA was eaten up by the increased medication costs. Plus, I was potentially on the hook for more if the household had more (surprise) expenses.
For me and my household, it was easier, and more advantageous, to get traditional coverage, with an FSA for tax savings, and put any extra money in a different type of investment account.
For young people with medical issues, they may (may) find that they also are better off with the traditional insurance plan.
On the other hand, young people with no health problems or expected costs (ie: giving birth) would probably do better with an HSA plan.
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Thank you for the clarification. Others might find your experience very useful.