LOUISE FAIRSAVE: Personal finance 101
A case can be made for a formal course in personal finance for tertiary students. Particularly given the increased cost of university and college education plus the drive by many students to achieve at least master’s level qualifications, students need greater financial literacy towards ensuring they will build successful careers and successful lives.
There is greater likelihood nowadays that students will undertake some form of loan funding towards financing their education. Most student loans are structured so that the student may not have to consider repayment until a full year after graduating. Some lenders may even extend the period of simple interest until the student secures his first job in the prevailing difficult employment market.
Yet, many students focus on the funds needed to complete their studies and pay less attention to the working meaning of “principal, simple interest and compound interest” in the loan agreement to which they commit. In addition, the repayment cycle is usually deferred until at least a year after the student graduates. With this limited view, it is not uncommon for some students to request funds well in excess of what could work as a minimum for the period of study. Then, the graduate sees no problem in deferring repayment for as long as possible. In fact, some graduates refuse to repay and force the lender to call for the outstanding repayment from the sureties.
Furthermore, in planning a career and seeking full-time employment after completing tertiary education, graduates need to be in a good position to evaluate competing job offers.
The aspect of retirement planning is also growing more critical. One of the golden keys to retirement planning involves starting personal retirement savings from as early as possible. Voluntary contributions to a corporate scheme also help. Can the graduate properly evaluate differing corporate pension schemes?
Also, if there is no suitable job available and the graduate ends up unemployed or underemployed for an extended period, that graduate should know enough to evaluate the opportunity to become an entrepreneur.
Graduates typically get the higher paying jobs, yet what is the use of large sums of money that is frittered away? The bigger the sum, the more you should know about handling funds. For instance, graduates will likely be looking towards acquiring a credit card, negotiating a mortgage and acquiring other home furnishings and appliances. Will they make astute choices? How much do they understand about earning, budgeting, investing versus consumption, and insurance? Will they be adequately equipped to evaluate the sale pitches of the various product and service providers?
Parents have a pivotal role in setting their younger children on the right path with regards to handling money. However, as the graduate moves on to start their own lives, there are significant life choices involved in making such financial decisions.
The world is becoming more and more complicated and dynamic. The majority of parents cannot help explain, for example, the growing mathematical complication of corporate pension schemes and the related investment choices to be made. In their time, it was simpler. It has grown more and more confusing and reliant on one’s personal disposition to investment risks. At a minimum, the investor should understand enough to make his own value judgement of the risks he is willing to take.
Personal Finance 101 is a necessary course that will reduce the chances of more young adults making terrible money mistakes.
• Louise Fairsave is a personal financial management adviser, providing practical advice on money and estate matters. Her advice is general in nature; readers should seek advice about their specific circumstances. This column is sponsored by the Barbados Workers’ Union Co-op Credit Union Ltd.