THERE is a growing interest for financial literacy among young adults. In the last six months, I have had young graduates — most of whom who have taken up jobs to acquire work experience so that they can pursue a masters' degree later — asking me about financial planning. Also, there has been enthusiastic response from young BPO employees to workshops on managing money, organised mostly by their employers. Many think managing money is about learning the concepts, terminology and processes. Developing the right attitude towards money is perhaps precious at a young age, when people begin to deal with money they can call their own.
First, making decisions about money requires making sensible choices. It is about considering alternatives before deciding. Youngsters struggle with choices anyway — from the clothes they wear to the friends they make. They tend to be swayed by a number of external factors — peer pressure, fads and coolness quotient. Money choices need not mean stark rationality, but definitely require taking the time to make up one's mind, especially after considering one's specific situation. The ability to distance oneself and make a considered decision is a trait to be developed over time. Many grownups are unable to hold back the impulse when it comes to spending. It is important to hone the skill to not act in haste, but think through a decision. Keeping away from discount sales, last day offers, special prices, freebies and the likes is a good starting point. A good decision with money is made without being pushed into something in haste. Given the time, a good decision persists on merit and what could have been a bad impulsive decision fades off.
Second, given that money is a limited resource, allocation towards various needs is a tough challenge. All of us have memories of spending away our salaries too soon, and the painful wait for the next pay day. Making a budget may be an extreme case, but taking the time to make a mental allocation to key items that need money, and completing them first, is a good habit to develop. Without prioritisation, wasteful expenses take away most of the income, leaving too little for essentials. Borrowing from friends may not always be a palatable or available option.
Using the credit card only means spending the future income today. A mental allocation to various important needs and the ability to prioritize is another skill to develop. Using internet and mobile banking to set up auto debits for key payments, and ensuring these are completed before the money is available for other uses, is a good habit. It may be tiring to consider the money angle every time a spend presents itself, but mental budgets tend to bring about discipline over time and a control on ones finances.
Third, saving for the future is not something that crosses the mind of young first-time earners. There is a high level of confidence about the future and a fear of the unknown, is well, unknown. It is even seen as extremely conservative to set money aside. To save is to pay ourselves, from what we earn. But, it takes a while to develop that attitude. A good beginning point would be the ability to overcome the need for instant gratification. The emotional quotient needs to get better, so every need does not look like an immediate necessity to be fulfilled without delay. Living in a consumption age where spending is the new fad, this may be tough. But, the ability to postpone a desire is what would develop into the ability to save. Savings provides a much greater flexibility with money and enhances the choices one has in using money.
It would take a while to develop the right attitude to money, since much of it is shaped by one's upbringing and specific circumstances. But, it may be worthwhile to consider the independence that earning money brings in and to hone one's skills with money.