Christian Financial Advice and Biblical Stewardship

Financial Follies of the Young

  • 2010 31 Mar
Financial Follies of the Young


There's an old joke that youth is wasted on the young.  Financially, it's easy to back that up.  According to tax information service CCH, for example, just 28 percent of workers younger than 25 are contributing to an employer-sponsored retirement plan.

Of course, the best way to take advantage of the power of compound interest is to begin investing when you are young.  However, for young people that can feel like an impossible time to begin investing.  Incomes are low, the costs of starting one's adult life are high, and besides, retirement is just some vague concept set far in the future.  There will be time to get to that later.

Maybe all that's missing among the young is a little bit of financial knowledge.  Here are two financial insights I wish someone had shared with me when I was younger.

First, learn the benefits of getting started early and the penalties for waiting. Use an online calculator to estimate the results of starting to invest at various ages.  For example, if you invest $200 a month starting at age 20, earn an average of 7 percent interest per year, and do that until age 70, you will end up with over $1 million dollars. 

Wait until age 25 to get started and you'll end up with about $300,000 less. 

Hold off until you're 30 and you'll lose out on $500,000.

Here's another eye-opening illustration. Person A invests 200 per month starting at age 20 and then stops investing after 10 years.  Person B waits until age 30 to begin investing $200 per month and continues doing so for the next 40 years.  Person A invests a total of $24,000.  Person B invests a total of $96,000.  Assuming a 7 percent annual return, at age 70 person A ends up with $550,000 while person B ends up with $500,000.

Now, here's the second insight: Get in the habit of prioritizing your use of money properly as early as possible. There are only five things you can do with money once you have some. 

  • You can spend it
  • Use it for debt payments
  • Save it
  • Invest it, or
  • Give it away. 

And that's the order encouraged by our culture: use it for lifestyle spending first (where to live, what to drive, where to vacation), make the monthly debt payments that always seem to come with a lifestyle-first life, save and invest if there's anything left over, and then maybe throw a few bucks toward charity.

The far better order is to be generous with the first portion of any money received, save or invest the next portion, and then build your lifestyle on what remains.

What about debt? Never carry a balance on your credit cards, don't finance vehicles, and if you have education debt, pay more than the minimum so that you can wipe out that debt as soon as possible. When you buy a house, take out a mortgage that requires no more than 25 percent of your gross monthly income for the combination of your mortgage, property taxes, and homeowner's insurance (if you live in a high housing cost state, you may need to go as high as 30 percent).

With these insights, youth need not be wasted on the young.  If you're in your 20s, are you putting these ideas into practice?  If you're older, what other financial lessons do you wish you had learned when you were younger?

March 31, 2010

Matt Bell
is the author of two personal finance books published by NavPress: "Money, Purpose, Joy" (September 2008) and "Money Strategies for Tough Times" (April 2009).  He speaks at churches, conferences, universities, and other venues throughout the country.  To learn more about his work, visit his web site at