6 Financial Concepts Every Young Person Must Know
26 Jun, 2024

 

Thabo Qoako, Chief Impact Officer at Momentum Metropolitan

 

Finishing school is a huge step in life – and it’s important young people are prepared for all the highs and lows of adulthood. One important aspect is finances, but so often graduates are not prepared to manage their money effectively and successfully.

 

Thabo Qoako at Momentum Metropolitan highlights the key financial principles every young person should be aware of to build financial independence and success.

 

Learn how to budget

 

Budgeting is a fundamental financial skill that is often underestimated. It involves creating a plan to manage income, expenses, and savings. By understanding and practicing budgeting, you can ensure you spend within your means, avoid unnecessary debt, and allocate funds towards your financial goals. A well-structured budget helps track spending, identify areas for cost-cutting, and set aside money for future needs.

 

Understand debt and interest

 

Grasping the concepts of debt and interest is essential. Young people should learn to differentiate between good debt and bad debt. Good debt, such as student loans or home loans, is an investment in the future, whereas bad debt, like high-interest credit card debt, can lead to financial strain. Understanding the cost of debt and how interest works (both simple and compound) can help you make informed borrowing decisions and avoid debt traps.

 

Set financial goals

 

Unfortunately, you won’t wake up one day with a bag full of money under the bed. That’s why you need to set yourself clear financial goals so you know what you’re working towards, and how long it will take. Goals can range from short-term objectives like saving for a new phone or a holiday to long-term plans such as buying a house or retirement savings. Goals provide a framework for budgeting and saving, helping you prioritise your spending and stay focused on your financial aspirations.

 

Be aware of your emotional spending triggers

 

We don’t just spend money because we need things – sometimes we just want something because we saw it on Instagram, or because our friends have it. The psychology behind spending is influenced by various factors, including family, friends, and social media. Recognising these influences can help you make more conscious financial choices. Being aware of emotional spending triggers and understanding the impact of peer pressure can lead to better money management and financial resilience.

 

Get to grips with tax

 

Understanding taxation is crucial when you enter the workforce. Knowing how taxes work, including income tax, VAT, and other deductions, helps in accurate financial planning. It’s important to grasp how taxes impact take-home pay and to be aware of potential tax benefits and deductions available.

 

Start saving and investing NOW

 

Saving and investing are crucial for financial growth and security. You should understand the difference between the two: saving provides a safety net for emergencies, while investing helps grow wealth over time. Learning about different investment vehicles, such as stocks, bonds, and mutual funds, can help you make informed decisions that align with your risk tolerance and financial goals.

 

“Being financially literate will play a significant role in a your future success, says Qoako, as “it empowers you to make informed financial decisions, avoid debt, and build wealth.

 

“Financially literate people are better equipped to handle economic challenges, plan for retirement, and achieve financial independence. By understanding these key financial concepts – budgeting, debt, goal setting, the psychology of money, taxation, and saving and investing – you can build a strong financial foundation that will set you up for future success.”

 

ENDS

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@Thabo Qoako, Momentum Metropolitan
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