The Protection of Investment
Many people study for a long time and work their whole lives to remain without financial freedom, mired in debt and financial traps. Financial freedom is the benefit of not depending directly on work. The higher the possibility of achieving this goal, the sooner people start investing and saving money. It is crucial to start building an emergency fund as a teenager, and then, it becomes easy. However, schools don't teach high schoolers how to manage money and plan their finances. That's why financial literacy during youth is crucial.
According to the federal reserve bulletin, about 80% of American families are in debt, and they work most of the year to pay for their ever-increasing debts. With the high inflation, this situation is even more frequent. A basic understanding of finance since you are a teen can help you not fall into financial traps. Exemplifying some usual financial mistakes that would not happen with financial literacy: Instead of taking the debt, you can be the one who lends the money. Instead of simply buying expensive products that do not match your income, you can be a partner of good companies that sell these products, and profit from their sales, while instead of buying a beautiful house more expensive than you can afford, you can own the building land.
As Robert Kiyosaki, author of Rich Dad Poor Dad, so well pointed out, “Most people work for their companies, for governments (paying taxes), and banks (paying interest on loans), but they forget to work for themselves (building assets)” Understanding the real difference between an asset and a liability and where to allocate capital, in addition to having good financial planning, can be your game-changer. It can provide a more comfortable life for you in the future. Money should not be your main problem.
According to the national center for education statistics, 69% of the students that end high school enroll immediately at college, which means that 31% of the students become part of the workforce after high school; for those who graduate, just a few colleges offer personal finance education. Regardless of a person's education, they will need to know how to manage daily living expenses and budgets, and none of the institutions prepare people for that. Understanding the basics of personal finance and learning how to deal with day-to-day expenses is vital. Most people do not understand credit cards, products, services, credit scores, etc.
In 2008, the subprime crisis showed how the lack of financial literacy has the power not to brake people but the county as a whole. People got debts that they couldn't pay for. The situation crises exemplify how poor financial decisions could have been avoided if people had been financially educated from a young age.
The earlier people understand finance, the better the financial plan gets, and the more the compound interest acts on the money. When high schoolers start investing and saving money at about age 16, they might have a high monthly income from earnings when they reach their 30s. In the compound interest formula, the only exponential term is time. Therefore, for those who start soon, the future will come earlier. In sum, for high school students who learn the basics of finance, financial life becomes much less complicated, and the sooner you start investing, the more exponential the returns of those investments will be.
To exemplify how to start soon, I’ll do an investment simulation. In the first case, the contributions are made for a period of 10 years, and in the second case, the contributions will be made for 20 years. The example will relieve the difference between starting investing at 16-18 and 28 for example. If a person makes monthly contributions of 100 dollars with 1% return per month for 10 years, in the end, the amount will be approximately $23,000. In a second case, if a person invests the same 100 dollars a month with the same 1% return but during a period of 20 years, the amount is approximately $99,000, in this case, we see that the time of contribution doubled. Still, the final amount multiplied by 5 is a consequence of the compound interest. In sum, what is clear in this example is that between soon is more important than starting after, although starting when you’re in your 30s means a bigger monthly contribution.
Quoting Edmund Burke, “If we command our wealth, we shall be rich and free. If our wealth commands us, we are poor indeed”. Therefore, people should learn how money works as soon as possible, then the chances of breaking or “being commanded” the wealth are high. Financial literacy can moderate individuals with the ability to create wealth by taking advantage of things such as investments and how to be prepared for crises without being desperate.