Extension Educators can change their clients’ lives dramatically by sharing information and tools to build wealth. One of the most valuable financial resources is time for compound interest to work its magic on regular savings deposits such as Roth IRA contributions. Some young adults have almost 50 years before retirement age (e.g., age 18 to 67)!
Below are six tips to help them build wealth for financial security in later life:
- Develop Future-Mindedness. Studies have found positive associations between future-mindedness and a propensity to make plans and positive financial (and health) practices. When people focus on their future and set goals with a dollar amount and time deadline, they tend to be less impulsive spenders and more likely than non-planners to make savings progress and to have savings set aside for emergencies and retirement.
- Practice Frugality. Frugal people prioritize spending on items they value and reduce or eliminate other spending. One way to foster a frugal mindset is to “convert consumption into labor” and calculate how long it takes to earn money to buy different things.
- Build Assets– Time-tested strategies to increase investment balances include increasing household income, spending less than you earn (i.e., living “below your means”), saving all or part of positive cash flow, investing early and regularly, automating regularly scheduled investments, paying off debt, and using credit sparingly for “good debts” with the potential for higher income (e.g., certification course) or appreciation (e.g., a house).
- Respect Compound Interest. Compounding is beneficial when people earn interest (and, later, dividends and capital gains) on money that they set aside. It can also be incredibly detrimental when interest is paid on borrowed money.
- Separate Good and Bad. Good (growth) assets have the potential to increase in value. Bad (depreciating) assets lose value. Good debt is borrowed money used to acquire a good asset (e.g., a home mortgage) and bad debt is borrowing for a depreciating asset (e.g., a revolving credit card balance for clothes).
- Maintain a High Credit Score. Two key strategies are required to maintain an excellent FICO credit score of 720 or above (on a scale of 300 to 850): pay bills on time and keep the amount of money borrowed low.
For additional content related to working with clients on personal financial issues, visit the OneOp Personal Finance Team. Free CEUs are available for AFCs and CPFCs through our webinars.
Written By:
Barbara O'Neill
Edited By:
Selena Garrison
Program Coordinator
Comments (0)