Start Saving When You Are Young: You Can Always Spend the Money Later

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June 7th, 2011

Saving money doesn’t have to be complicated
I swelled with pride when my 19 year old grandson told me he had opened a savings account and of course I made a donation to start it rolling. This marks his arrival at adulthood, I thought. He has no debts either.

Income-based repayment plans
That’s the concern for Brandon Smith, who recently graduated with a degree in journalism together with $98,000 in student loans. NPR asked personal finance expert Beth Kobliner what advice she might give Smith and other young adults. And she started her answer with one practical point. “There’s something called income-based repayment plans,” Kobliner tells Morning Edition host Steve Inskeep. “So, basically you pay back your loans as a percentage of income, and after 20 years, if you’re going into a relatively low-income job, your loans disappear completely.” Another idea is for students to consider debt when they’re looking at colleges and fields of study, says Kobliner, the author of Get a Financial Life.

Start Early
There have been several initiatives to teach financial literacy to young people. But it can be hard for students to find time for the programs and to absorb what they teach. “You can be in information overload and you say, ‘There is so much out there. I have no idea where to turn, so I’m just going to ignore it all,’ “Kobliner says. And while new technology, like budget-tracking software, can help, it doesn’t guarantee better results.

Back to basics
“I think we have to go back to basics,” Kobliner says. “We have to look at the very old-fashioned notions of, ‘Hmm … we shouldn’t spend more money than you have.’ “
She says that another thing to keep in mind when researching options for saving and investing is where all of the data come from. “Is it being sponsored by a bank?” Kobliner asks. “Is the website that’s offering it to you getting money back from what you’re clicking on?”

Forget about calculating
Don’t worry so much about learning how to compute interest, or amortization. “You just have to know that, ‘Gee, I want to pay 5 percent rather than 10 percent,’” she says.

Retirement
Another thing young workers should begin planning is their retirement. And Kobliner says they should start when they’re 21. “I think that sounds frightening to some,” she admits. “As soon as you have even a little bit of money, I’m a real advocate of putting money into something called a Roth IRA,” Kobliner says. “And, if you need it, the money you put in, in an emergency, you can get it out.”

Save, save, save
The key to saving whether for an emergency, or for retirement, she says, is “basically, starting as early as possible.” If you never need the money you saved when young, that’s great. But if you do need some extra cash in midlife for some unforeseen emergency, it will be there. Saving is a win-win deal!

This entry was posted on Tuesday, June 7th, 2011 at 3:29 am and is filed under Economy, Employment, Finance, Money. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.

Start Saving When You Are Young: You Can Always Spend the Money Later

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