Perks of Being Financially Literate Early in Life

College is often one’s last chance to live a care free life before adulting hits. I was your typical college student during the first three years of college. I spent money on alcohol, ate out all the time despite having a meal plan, and eagerly awaited the next source of income that likely did not come for another ten days — luckily ramen noodles and pizza rolls existed! However, during my senior year of college, one class forever changed my perspective on money.

Rather than taking a corporate accounting class that I could likely learn on my own, I decided to take something a little more fun, and quite honestly more important. I took a personal finance class. I learned about topics such as emergency funds, investing, and much more. If anybody has the opportunity to take a personal finance class, whether it be in college or a side class, I highly recommend you take one!

Here are some key perks of being financially literate before I graduated. Bear in mind that even if you have graduated many of these tips are still relevant to your own life.

Time to Make Mistakes

Everybody hates making mistakes. It can be very time consuming to fix a mistake or extremely costly depending on your situation. One of the perks of becoming financially literate early on is that you have a lot of *time* to fix your mistakes.

A real life example of this is actually a friend of mine who regularly reads my blog. This individual used to have a similar salary to me but lived far beyond his means. They were racking up credit card debt, and struggling to keep up with the minimum payments on their loans and credit card payments. Luckily, they saw my Facebook post about my blog and really immersed themselves in the world of personal finance. Since they have learned about FIRE and abolishing the paycheck to paycheck lifestyle, they are rapidly crushing their debt and are striving to build wealth.

This is not an uncommon story as thousands of people who read personal finance blogs have their financial epiphany. Imagine knowing that you had a higher net worth as a baby ($0) than you did at the age of 25 due to debt. That is scary… luckily time is on our side to fix our financial situation and begin building wealth.

Time to Compound Wealth

Albert Einstein famously said, “Compounding is the eighth wonder of the world.” When it comes to building wealth, compounding is arguably your second greatest asset. Wonder why? The answer is simple — time is the greatest asset. Without time, compounding will be minute in its effect.

One of my favorite examples is the example my professor showed the class on the very first day. Person A is a 25-year-old with no invested capital who contributes $10,000 a year into the stock market at a rate of return of 7% for 25 years. Person B is a 30-year-old with no invested capital who contributes $12,500 into the stock market also at a 7% rate of return. Both individuals are depositing a total of $250,000 by the age of 50 but one person comes out with a far superior net worth.

At the age of 50, person B would have a stock portfolio worth $548,315. Not bad for a $250k investment! While this surely is not a small sum of money, person A would have accumulated a whopping $676,765 by 50. This is the power of compounding and the power of having time on your side. Starting five years earlier generated an additional $128,000 in wealth.

Time to Develop a Wealth Building Strategy

Having a strategy to building wealth is crucial. You cannot just save your money and aimlessly invest it without knowing what your strategy is. For some, this strategy may be a simple, yet effective, index fund only plan. It involves minimal stress and has historically had 7-8% returns per year. For more savvy investors it may involve a mix of stocks, real estate, crowdfunding, P2P loans and much more.

It is important to understand that over time your strategy will evolve. Nothing should be static. Right now I am only investing in stocks because that is what I deem the best use of my limited capital. However, within the next three years, I have hopes of entering the real estate market to supplement my passive income from dividends.

While there are certainly other perks of being financially literate early in life, time is the common theme. Whether it be time to fix your mistakes, or the additional time to allow compounding to take effect, it pays to be financially literate early on.

Rather than wasting 5 or 10 years of my life blowing through my paychecks purchasing materialistic items that do nothing to benefit my life, I am building wealth. If I were not financially literate, I cannot guarantee I would be on the same course as I currently am.

How has being financially literate changed your life? If you are not financially literate, what are you doing to change that?

25 comments… add one
  • Brad - MaximizeYourMoney.com Feb 20, 2017, 8:39 am

    SUCH an important topic. But how do we get more young people to take notice, and take interest?

    Our daughter still says she appreciates that we had her go through FPU Junior when she was 14. Most parents don’t take initiative to financially educate their children though. So it seems we need to reach them ourselves once they’re already “in the world”.

    • Stefan Sharpe Feb 20, 2017, 8:45 pm

      There are many ways Brad. Parenting is certainly one, school another. It will take a shift in academic thinking to realize that they need to teach us important subjects rather than some that we arguably never use in life.

      She is lucky you had those talks!

  • Amanda @ centsiblyrich Feb 20, 2017, 12:04 pm

    I posted something related today – for those that didn’t get started so young. Becoming financially literate in your 20s can be seriously life changing. And the more we can spread financial literacy to millennials the better!

    But, even for those who don’t get started young, it’s never too late! We started in our 30s and are making great progress and I know people who have started even later that have changed their lives for the better. No matter your age, there’s no better time to start than today!

    • Stefan Sharpe Feb 20, 2017, 8:46 pm

      Exactly Amanda! I love following your journey as your family is well on the way to FIRE. Will check out your post!

  • Mrs. Picky Pincher Feb 20, 2017, 3:15 pm

    Ahhh, time. It’s one of the greatest things in the world to own but you can hardly ever buy more of it. 😉 I do wish I’d had my head screwed on straight at age 17 when I chose my college. I went to an expensive private university and it really screwed me and my family over with high loan amounts. Aghhhh!

    • Stefan Sharpe Feb 20, 2017, 8:47 pm

      Time is a non-renewable resource that far too many people waste. While you cannot change the past, I too went to a private university, you certainly can change the future, even if it is slightly slower. Hopefully you took a worthwhile degree!

  • Time is really our greatest asset. When people ask me whether I will get bored retiring at 33-36, I ask them to write down what turns them on. “work” pops up very occasionally. 😉

    • Stefan Sharpe Feb 20, 2017, 8:48 pm

      Good ole work. The thing many people need but few will escape. Once freedom is reached I will not retire but I certainly won’t need to deal with the everyday unhappiness people have to just to make ends meet!

  • Dividends 4 Future Feb 22, 2017, 4:58 pm

    The biggest problems is no one teaches you that you need to setup a 401k on your first job if they offer it because you are not going to be there forever and that you can rollover that plan into your new job. I got my first IRA when I was 27 at Vanguard and have been maximizing it ever since, I just wished I started investing at 18 🙁 The only thing you can’t recover is time.

    • Stefan Sharpe Feb 25, 2017, 10:56 pm

      TIme is non-renewable and sadly most waste it. At 27 you are still going to be way ahead of the game

  • Mustard Seed Money Feb 22, 2017, 9:39 pm

    Time is our greatest asset and liability. I still remember in my youth thinking about how much time I had. Now I feel like I have no time and I can’t ever get on top of all the things that I want to.

    I am definitely glad that I started investing at a young age, as some of my peers didn’t take it as seriously and are seriously struggling.

    • Micro Dividends Feb 25, 2017, 2:20 pm

      Yeah, some people just don’t seem to grasp that idea.
      My roommate for example, has 40K in student debt, and 8k in consumer debt (and growing) on a high interest card. Eats out everyday, and goes out every weekend. Age, late 20’s.

      What’s her plan? Marry into wealth….

      Not once, she ask what I’m doing when I’m watching Bloomberg markets, or listening to investing podcast.

      • Stefan Sharpe Feb 25, 2017, 10:56 pm

        Ouch! I think that is a lot of people’s plan these days but there are not enough rich people out there!

  • Micro Dividends Feb 25, 2017, 2:17 pm

    I would have benefited greatly from this advice. But my personal take on this is that most people have to experience hardship before these sage advice finally clicked in.

    I can’t recall how many times, I’ve heard these advice of start early, and let your money grow. It went one ear, and out the next… I can see it happening with my younger brother. All the advice I’ve given him, all the data as a proof of concept. Yet it doesn’t seem to click.

    Then I realize he never had financial hardship. He always lived at home, never had any financial obligations.

    For me was different. As I turn the big 3-0. I took a hard look at my bank account. I literally squandered my 20’s away, and wish I was in a better financial situation. The idea of living pay check to paycheck, till retirement, only to live pay check to pay check on social security was a scary thought. Had to make a quick 180 and become finanically literate. All while learning the process of making mistakes and stumbling here and there.

    • Stefan Sharpe Mar 2, 2017, 8:47 pm

      That is an interesting take. I think most people need that epiphany before they change their life. Luckily, I grew up in a 3rd world country so just seeing my environment changed my mindset early on.

  • Diligent Dividend Feb 28, 2017, 10:35 am

    I love how you put this all into perspective! Thankfully my parents taught me how to be financially sound as a young kids. I would do chores to earn money and I basically had to buy everything I wanted. My dad would also help me save and buy stocksome when I was a teenager do I have him to thank for my thinking into the future perspective. Thankfully I now have time on my side!

    • Stefan Sharpe Mar 2, 2017, 8:46 pm

      You had a very good role model in your life. Keep at it I will be following along!

  • Alexis @FITnancials Mar 1, 2017, 4:07 pm

    I took a personal finance class my sophomore year in high school and didn’t learn much at all. It was more like a class where we watched a lot of movies and sometimes did work, which I loved at the time, but now that I’m older, I wish we actually would’ve learned about finances.

    • Stefan Sharpe Mar 2, 2017, 8:45 pm

      Haha i mean when you are in high school that is the last thing on your mind. But it also speaks about the kind of teacher you had. I only remember my good high school teachers which were normally strict. Good thing you learnt early on though!

  • wealth from thirty Mar 1, 2017, 8:37 pm

    Time and patience will trump effort again and again – John Huber recently pointed out Munger idea that as investors, we might only have a handful of great ideas in a lifetime but being patient for them to turn up, and allowing them to grow to fruition will be far more rewarding than scurrying about churning through mediocre ideas. Thanks for the great post Stefan.

    • Stefan Sharpe Mar 2, 2017, 8:44 pm

      I LOVE THAT! Most of the wealth made in the stock market will come from corrections and crashes, along with just time in the market. That is obviously why he is one of the best at what he does. Thanks for stopping by!

      • wealth from thirty Apr 8, 2017, 6:05 am

        Happy to stop by! Just returning to check for new posts…maybe I should check if I’m subscribed!

  • DS Mar 16, 2017, 2:53 pm

    One of my coworkers made a statement that has stuck with me: Why do we spend 40 hours or more a week working but make so little time for being good stewards of our earnings?

    Personal finance education is so important for creating a trajectory to financial independence, or at least a trajectory toward responsible financial decisions. I recently read a book regarding knowledge banks that the poor, middle class, and upper class typically possess. Thorough personal finance knowledge is very important in order to ascend classes.

  • Divicents Mar 18, 2017, 12:01 pm

    I made my oldest daughter read the wealthy barber at the age of 7.

    She just finished one of my favorite books by Burton Malkiel, A Random Walk Down Wall Street. Not bad for a 9 year old 🙂

  • Wallet Squirrel Apr 10, 2017, 7:39 pm

    OMG, I wish I was more financially literate earlier in life.

    My friend told me a story of how her parents gave her a bit larger than average allowance as a kid, but they were required to buy their own new clothes, food when going out or souviners on family vacations.

    They learned early on that what they got, was all that they had.

    I thought this was a cool idea on how to teach my future children. Instead of my kids asking for $20 to go to the new movie, I can tell them they can use their allowance. From their experience, it really helped them understand the importance of choosing carefully what they wanted to buy and the importance of saving.

    That’s a kid that learned financial literacy early on in life. =)

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