Financial advice for an 18-year-old?

Last week, Isaac asked Get Rich Slowly readers for advice on how to handle life after grad school. He's about to enter the workforce and needed tips on what to do until he gets his first paycheck. Isaac was very pleased with your helpful responses.

This week, we've got a chance to help somebody even younger than Isaac. Nico is 18, a sophomore in college, and financially clueless. He needs help! Here's his story:

I'm pretty young — about to start my sophomore year of college — and I literally have absolutely no knowledge of anything financial. I do have a simple student account with a paltry amount of money in it, and that's really about it. So yeah, the majority of your site goes over my head and some things are quite intimidating.

I'm going to continue browsing the basics section in order to see if I can glean some information, but are there any other resources you would recommend to a financially clueless 18 year-old? I think it would be a good idea to start this kind of stuff earlier rather than later.

Nico's right: The time to start learning about finances is now, before he needs to know the information. Fortunately, he's not as far behind as he thinks he is, even if he does feel clueless. It's my guess that most young adults feel lost when it comes to money.

So, what resources would I recommend for an 18-year-old kid? As much as I'd love to pitch Get Rich Slowly and Your Money: The Missing Manual, I actually think there are better options, including:

    • Michael Mihalik's Debt is Slavery, which carries the subtitle, “and 9 Other Things I Wish My Dad Had Taught Me About Money”. This slim volume is one of the quiet classics of personal finance, and it's perfect for college students. My review from three years ago gives a run-down of the book's contents.
    • On the web, CNN Money has a great little site called Money 101, which features a crash course in various financial topics. Nico should bookmark this page and refer to it whenever he has questions about a particular topic.

Although Nico didn't ask for specific advice, I'm going to give him some anyhow. I'll repeat the same advice I give when I speak to other college students. Namely:

    • Develop a basic budget. It doesn't have to be fancy. Whatever Nico chooses to do, he should get in the habit of setting aside 20% for saving and investing. This may sound like a lot, but if he can start the habit young, it'll be easier — and will yield greater returns — in the long run.
    • Learn how to work. I made a lot of mistakes when I was younger, but this is one thing I got right. I knew my parents couldn't support me when I was in college, so I worked as many jobs as I could. I learned how to work hard, how to deal professionally with all sorts of people, and how to maintain a positive attitude. These skills are tremendously valuable later in life.
    • Avoid lifestyle inflation. Even in college, it's important to watch your spending. As Nico's income increases, he'll be tempted to increase his spending in proportion. The more he can resist this urge, the more successful he will be with his money. It's okay to spend, but be reasonable.
    • Do what you love. A low-paying job that leads to future prospects in a career you like is better than a high-paying job in a career that doesn't move you in the right direction. Never stick with a shitty job. And don't be afraid to change your major. It's easier for Nico to change direction now than it will be in five or ten years.

Maybe it's because of my own experience racking up debt during college, but I think it's important for young adults to learn the fundamental law of personal finance: To build wealth, you must spend less than you earn. There's more to it than that, of course. The less you spend, the more flexibility you have.

When I graduated from college, I bought a new car and developed credit card debt. I had to take any job I could find because I was tied to monthly payments. When my friend Sparky graduated, he had a lot of freedom. His debts were minimal. He traveled the U.S., taking whatever job struck his fancy. He spent time in Mexico. He spent five months traveling southeast Asia. He was able to do these things because he didn't have expensive obligations.

I don't think Nico should worry about stuff like investing and insurance right now. These are important, but they're beyond the basics. For now, Nico should focus on learning how to earn and spend money wisely.

What do you think? What do you wish you had known about money when you were 18? What advice do you have for Nico? What books or websites (or other resources) would you recommend for him? What steps can Nico take at 18 to make sure that Nico at 41 is happy, wealthy, and wise?

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Paul Williams
Paul Williams
9 years ago

I’d actually recommend Your Money or Your Life as well. It might not be completely relevant to him at this stage. But if he can begin to see that “money = life energy” at this early age, it could have a powerful effect for the rest of his life. Maybe it’s better for those who are in crisis mode, but I think the concepts of life energy and calculating your true hourly wage can be extremely useful for just about anyone. That book helps to change the way you look at money. I also agree with you that Nico doesn’t… Read more »

lostAnnfound
lostAnnfound
9 years ago

Go to the continuing ED department of a local high school or community college and take a class in economics, specifically on personal finance. This is offered at our high schools for full-time day students (which I will make sure my kids take this class). I wish they offered this when I was there. It starts with savings & checking accounts and goes up to investing.

Daniel
Daniel
9 years ago

A few things: 1. Pay your credit card off each month, if you want to put something on the card but wouldn’t be able to pay it off, don’t buy it 2. I think the above info is right, don’t worry about investing just yet, until you a decent paying full time job it will really colic ate things 3. Establish a small emergency fund in a savings account, probably $2000-$3000 should be sufficient 4. Pay what bills you have ON TIME, this will help you start building good credit now that you can leverage later to buy a car… Read more »

AC
AC
9 years ago

I hope that he learned enough financially to be selective in his choices for higher education. If anything, he needs to assess his current situation and get out of the habit of “blind indebtiness.” Yes, college may be “good debt,” but making the wrong choice in which institution you attend can be verying crippling to you future choices after college. Too many people are leaving college now with $30 to $60K in loans limiting a lot of their choices after the experience. If Nico is headed into that direction, I strongly encourage him to look more thoroughly at all options… Read more »

JM
JM
9 years ago

Get a credit card to start building a credit history. Keep the limit low for now to avoid temptation, and pay the card off every month.

Chett @5k5k.org
Chett @5k5k.org
9 years ago

The Wealthy Barber, or Richest Man in Babylon. Both books are told as parables and are easy to digest.

Mike Piper
Mike Piper
9 years ago

I’d argue that now’s the perfect time to learn about investing. There’s no reason you can’t open a Roth and get started while in college.

Investing can be complicated, but it doesn’t have to be.

Also, as long as you always spend less than you earn (and you therefore never end up in debt), there isn’t much left to personal finance other than investing and career.

Andrew
Andrew
9 years ago

I am not too far ahead of Nico (24 years old and two years out of college), but there are a few things I wish I had done at 18 that I didn’t even start to think about until after I graduated. First, put a lot of thought into choosing a major. Some people have this all figured out by the time they enter school, but I certainly did not and chose “General Business” since I naively believed “Business = Money”. I later switched into Marketing, but once again, put little thought into that move. I now work in Finance,… Read more »

Coley
Coley
9 years ago

At 18, major and career selection are far more important than any advice about savings accounts. “A low-paying job that leads to future prospects in a career you like is better than a high-paying job in a career that doesn’t move you in the right direction.” Nico, take this all-too-common mantra with a grain of salt. You want to find something that you enjoy doing, for sure, but it’s also important to be certain that someone is willing to pay you a decent wage to do it. This is just a hunch, but I’m willing to be that most 18-year-olds… Read more »

Dink
Dink
9 years ago

I disagree with AC about looking to online classes to complete your degree in an effort to save money — unless you’re taking a handful of online classes from a major university rather than one of these degree mill online-only colleges. Moreover, you won’t get the same personal, in-class experience as you would with a school that requires you to be in a seat which won’t just hinder your education on that particular subject, but it will also hurt your people skills (the most important skills right now). Don’t think that your University of Phoenix degree is going to be… Read more »

Shari
Shari
9 years ago

The worst financial advice I got was from my mother. It took me a long time to realize that she really wasn’t advising me well and I’m still recovering from that now and I’m in my late 30s. Make sure that the people you are listening to make sense for your particular situation.

Kate
Kate
9 years ago

Nico, I’m only 25, so the poor financial decisions I made when I was your age are memorable (I see them every time I open up a credit card statement!): 1. DO NOT PUT YOUR BAR TABS ON THE CREDIT CARD. 1a. Or clothes, shoes, gym memberships, tech gadgets, etc. 2. The spending on travel–totally worth it. I don’t regret a dime I spent on travel, if it was Spring Break travel to Mexico, or weekend trips around the country. Completely worth it. 3. The student meal plans? They run out quickly. Try to avoid eating at the ‘branded’ eateries… Read more »

Sam
Sam
9 years ago

I second LostandFound. I took a personal finance class offered through my local adult education classes after college. I might not have been ready for the class during or before college, but it sounds like Nico is.

I would do my best to avoid getting sucked into either credit or student loan debts if possible.

Erik
Erik
9 years ago

Avoid the following mental trap. It got me.

Let’s say you are earning $10/hr and working part time so $200/wk. I thought I would be earning 5x that amount of money very soon so it seemed reasonable to spend more than I made with the assumption that it would be easy to pay back later. This argument is what gets a lot of people in trouble.

I don’t think that saving is important at this phase of life but staying within your means is ALWAYS right.

fantasma
fantasma
9 years ago

Don’t sign up for a credit card just to get a free t-shirt or gift card.

Kestra
Kestra
9 years ago

Try different courses to see what actually appeals to you. What you think you should do, may not be what you should actually do, career wise. There’s a lot of pressure and expectations at that age. And hard to know how you really want to live. Learn about credit cards and credit scores. Having some safer debt to build up a good credit score is useful, but be careful of credit cards. At 19 I hurt my credit score for years by refusing to pay the annual fee on a card I never used and didn’t particularly want. (Signed up… Read more »

Tom
Tom
9 years ago

Make the interest payments on your loans each month, even if your loan provider allows you to defer them. It’s sobering to graduate and see that the “principal” on your student loans is 20-25% higher than what you actually borrowed and got to spend.

Nancy L.
Nancy L.
9 years ago

1. A few things you absolutely love are much better than a lot of things that are “ok”–this goes for clothing, home furnishings, gadgets, trips–pretty much anything. When you are young, it seems like you’ll never catch up to everyone else, so there’s a big temptation to rush out and buy stuff to fill up your apartment. I can tell you right now that if I were starting over again with a clean slate, I’d be a lot pickier about what I chose to spend money on, bc paying back debt AND clearing out a mountain of clutter is pretty… Read more »

Jennifer
Jennifer
9 years ago

Great post, and comments. I agree with those who say major and career choice are fundamental to future financial security. There’s something to be said for doing what you love, but if what you love doesn’t pay the bills, you’re going to be hurting. I found that out the hard way, and have drilled it into my 16 year old daughter so she doesn’t have to. Work to live, don’t live to work. Also – my daughter’s school offers Economics of Living as an elective, but I made it mandatory for her. I was completely clueless about money as a… Read more »

ajc @ 7million7years
ajc @ 7million7years
9 years ago

I would strongly advise any young reader to get some ‘business experience’ on the side. Fortunately, with the internet, that is SO easy these days: 1. Start a ‘for money’ blog. Stuck for a topic? Try this: write a blog aimed at other high school / college kids chronicling your attempts to improve your own financial situation … worst case, it could read as comedy. 2. Sell stuff on eBay; even better, find stuff in China and then sell it on eBay. Try not to get ripped off AND make a profit. Write about it on your blog … it… Read more »

SweetTPie
SweetTPie
9 years ago

These things may not be explicitly financial skills in the stocks-bonds-savings manner, but they will have an impact in the long run. A resource that many overlook: professors in your major. Now, I’m not saying that you should go and chat with them about financial stuff. In general, professors will be references for applications, and may have contacts with industry folks that they can give you to help find an internship, and later, a job. Or, in certain fields, a professor may hire you to go grunt work or research for them. Start by making good impressions. Don’t suck up,… Read more »

Rebecca
Rebecca
9 years ago

If he’s on his university’s health care plan, I’d argue the time to learn about insurance is now. The plans range from pretty okay to truly terrible, and way, way overpriced. (The one I was looking at participating in limited coverage to $200,000 per condition and would not cover any injuries obtained in intermural sports- among other things). Cheaper, better coverage is often available on the individual market if you have no chronic health issues. If he’s on his parent’s plan, he still needs to know what’s covered, what’s not, and what the impact might be should he have a… Read more »

Sarah
Sarah
9 years ago

Honestly, at 18, I wish I had known that debt is okay sometimes. I worked close to full time all through college so I wouldn’t have to take out loans (which was fine) and turned down a semester abroad (which I regret) because I couldn’t imagine borrowing the money to do it.

Pamela
Pamela
9 years ago

I’d like to reiterate J.D’s point to get used to working. I worked during school and every summer which allowed me to pay off my limited students loans shortly after graduation. I also agree with AC about alternative education. I went into college with some credits from Advanced Placement Courses which whet my appetite for graduating early. During the summer, I took required courses (not in my major) at a local community college for much less. I graduated a semester early and took my last three credits by taking classes while traveling in Europe. Believe it or not, that was… Read more »

Beata
Beata
9 years ago

Check out your school’s financial aid office, or school of business, especially in the next few weeks. Many colleges (such as mine) have a lot of free intro to finance workshops in the first few weeks of the year to help incoming freshmen (and other students) figure out what to do with their money. Second, get involved with paying for school, especially if your parents are taking care of it. The reason I learned so much was because I had to be the one to take care of it every semester, since my parents don’t speak enough English to help… Read more »

smirktastic
smirktastic
9 years ago

I’m in my *cough* late 30s now and went to HS in the 80s. We got NO personal finance education from school whatsoever. My parents did what they could, but I think most of it just never occured to them. I wish someone had told me then that credit cards are not necessary for a college student. As other commenters have said, some sort of personal finance ed should be mandatory for HS and college students. There’s just too much to know and too much at stake for society to just assume these kids will figure it out somehow.

Colleen
Colleen
9 years ago

If your university has a Personal Financial Planning department (some do, some don’t), see if they offer a course for non-majors. The university where I work does, and it is really a generalized financial literacy course. If there is one and it will fill a requirement for an elective or something, that would be a good way to move forward.

HollyP
HollyP
9 years ago

1.) Take a junior year abroad if you possibly can. Living and studying in another country is something you may never so easily be able to do again. The cultural experience and linguistic ability may help you in your career, too. 2.) Go to the school with the best optimal value (balancing school’s rep against the debt you would have to carry to pay tuition.) Don’t pick the best without regard to cost, don’t pick the cheapest without regard to reputation. 3.) Read Your Money or Your Life and take its lessons to heart. 4.) Set up an IRA and… Read more »

Nicole
Nicole
9 years ago

Second the CNN Money 101 site. I think the Motley fool site may also have a book geared towards young people. DON’T get Suze Orman’s Young, Fabulous and Broke. It has some really terrible advice in it that has gotten my friends in trouble in the past (particularly the spend on credit until you make it). Use your career counseling office whatever major you choose. I do disagree with a previous poster. If you’re really into film studies, then sure, major in film studies. Transfer to a top film studies school if you can. Get film studies internships. And so… Read more »

Kate
Kate
9 years ago

I agree with much that has already been said. I just wanted to emphasize the two things that were the most important to me:

1) Pay off your credit card every month. Pay with credit because it’s easier than cash, not because you don’t have the cash.

2) Student loans are ok as long as your major will let you pay them back in a reasonable amount of time. A philosophy major can afford less debit than an engineer.

Another Dave
Another Dave
9 years ago

I believe that reading the examples here and following such a blog gets an IMMENSE amount of first hand experience out for a Youth to take in. ALOT won’t be relevant until you go thru it. Then *blink* a little light will go on and you’ll remember reading about that situation. You’ll have a better handle on situations when they DO occur. There is alot of good suggestions above. You’ll want to talk to a professor BEFORE commiting to any Economoics/Finance classes. Most in my area are basic Economics (supply vs demand) and micro- “Marketing” classes. They did NOTHING for… Read more »

Kate
Kate
9 years ago

I have an 11…and a 12! Here goes: 11. Totally agree with Nancy L.’s #3-sign up for any 401(k) plan any place you may work offers. I’d be surprised if you were offered one at jobs I would assume you would hold at this age, but it’s free money. You won’t miss it. 12. Get the idea of ‘budget’ out of your head. There is no way you’re going to ‘budget’ (for many different reasons, none of which I will get into here). Instead of budgeting, focus on figuring out what you value spending money on. Spend $100 going out… Read more »

Carol S
Carol S
9 years ago

Nico should make sure he finds a credit union to use — it will be cheaper for the basics like checking. Many colleges are served by credit unions and if not, he should see if there is one in the community that he can belong to.

eileen
eileen
9 years ago

Nico is already on the right track – self-aware, asking questions and eager to learn. Oh, if I had only been so wise when I was 18!

Becky
Becky
9 years ago

Choose your friends wisely. It’s so much easier to fall into debt yourself when your friends are all putting bar tabs and iPhones on their credit cards. Invest in people whose values include curiosity about the world, good cheap fun, kindness to one another, and giving back to the community, and you’re well on your way to living a happy and responsible life. It’s easier to have a healthy relationship with money when your relationships with people are healthy too. I’m not talking about shunning people who have financial problems, of course; I’m just saying that we are molded by… Read more »

Ben David
Ben David
9 years ago

1. A dollar invested now is worth 10 or 20 dollars invested in your 30s. Google “compound interest” to see why. Whatever you are earning, put *something* away in savings every month. It can be just 5 percent of your monthly income – but do it. 2. Your “income” is NOT what you earn – it’s what you have left over at the end of the month. If most of your salary goes to pay for expenses and indulgences – that is not “your” money, you have given it to others – and you may wind up very “poor” indeed… Read more »

Julie
Julie
9 years ago

Go to a college you can afford and borrow within reason-no more than your anticipated first years income seems reasonable. Don’t borrow 100% of an expensive private education-especially in a low paying field. There may be exceptions, but if you are really that smart, then scholarships may allow you to go to an expensive private college for about the same cost as a public university. I see too many college kids financing 100% of their educations. We help our kids with tuition (and remind them we budgeted to allow for this) and expect them to work to pay for their… Read more »

JakeIL7
JakeIL7
9 years ago

The one thing I am surprised no one mentions here: Make sure you get all the money you can from the government. This means filling out those nasty financial aid forms. Even well off people usually qualify for something. Some other items: If you get loans, make sure they are subsidized. That is, the government is paying the interest while you are in school. Some you avoid the issue Tom spoke of. At this point, school is more important than work. I’m not saying avoid work; I’m saying that your work schedule should not impact your grades. Odds are good… Read more »

Nick
Nick
9 years ago

I was very fortunate at Nico’s age because my parents and my scholarships covered my college expenses. However, I took a part time job which provided me with beer money and, more importantly, laid a foundation for post-graduation savings. So my advice for Nico is to try to find a paying job for at least part of your week. Also, try to take the courses you enjoy. Follow your passions, maintain connections (you’ll need them forever), and work hard.

Jeff @ Sustainable life blog
Jeff @ Sustainable life blog
9 years ago

I wish I knew that credit card debt wasn’t required to become an adult. I honesty figured that if you had bills to pay, you became an adult. That was an expensive mistake, to be sure.

AC
AC
9 years ago

@Dink Not all online options are from degree mill universities. Alot of private colleges that are brick and mortar are focusing more online in order to stay competitive with public universities by gaining a wider base. It is important to set yourself apart, but unless you graduated from Harvard or West Point; the major plus supplemental certifications matter more than the actual institution.

Lyn
Lyn
9 years ago

With kids in college and graduated, I think the most important thing is to remember that it’s not a race and nothing horrible will happen if you don’t graduate in 4 years. If you have internship/coop opportunities, TAKE THEM. Not only will you be earning money for school/living expenses/savings, but you’ll gain valuable experience that will put you one more step ahead of the competition when it’s time to search for a “real job”. Sort of goes along with JD’s learn to work. And as far as the “never stick with a shitty job”, I couldn’t agree more, but you… Read more »

Lana McGlasson
Lana McGlasson
9 years ago

I would advise Nico to open a Roth IRA as soon as he starts working, even during college with part-time gigs. Time really is on his side, and with the low earnings he will probably be making, getting the tax deduction one would have with a traditional IRA probably won’t make too much of a difference. If he doesn’t want to make too many decisions about his portfolio, he could always just select a target-date IRA through one of the big brokerages, then just “set it and forget it.” I only WISH someone had advised me about this stuff at… Read more »

Beth
Beth
9 years ago

ONCE YOU HAVE YOUR 1st job: START PUTTING AS MUCH MONEY INTO YOUR 401k AS POSSIBle!!! Don’t say “I’ll wait til I”m earning more.” DO IT NOW SO IT will grow into a million dollars by the time you retire. I SO regret NOT taking advantage of EMPLOYEE MATCHING when I was young. I put the max in now, but I wouldn’t have to do that so much now if I’d started earlier and let the magic of interest and growth increase that money’s value.

Gwen
Gwen
9 years ago

I’m actually not too far off from Nico – I’m a senior in college. Here’s some things I’ve learned the last few years: 1. Get an on-campus job. It is some of the easiest money you could hope for and they tend to be much more understanding when it comes to class obligations than another job. You won’t get as many hours, but it is worth it. 2. Watch the stupid spending. I’d see my money dwindle away because I went to Steak ‘N Shake or did something fun but unnecessary with my friends a few times. Don’t be afraid… Read more »

M.C. Sommers
M.C. Sommers
9 years ago

I think one thing to consider is your job. A lot of my friends worked as servers and made good money. However, when it came time to look for jobs after graduation, they didn’t have any real experience to put on their resumes. As a result, they had a lot of difficulty finding a job in their field. I worked different jobs as an editor (I was an English major) while in college. Sometimes I made $7 an hour and other times I worked for free. I graduated in 2008 and had several job offers in a pretty bad economy… Read more »

Meg
Meg
9 years ago

I am 26 and recently out of college, but I feel like I have gained a lot of insight about personal finances in the few years I have been in the “real world.” 1. Sign up for Mint.com. Even though you only have one bank account now, as you get more accounts and credit cards, you can add them to Mint.com and see all of your accounts and their balances in one place. It shows all of the transactions, which you can categorize to see where you spend your money. You can also set budgets, so as you categorize the… Read more »

shorty j
shorty j
9 years ago

good on Nico for starting to think about this now. I think that’s one of the best things my parents taught me–I started saving for retirement etc. EARLY, around that age, and it means I’m accustomed to it, in the habit of it, and it doesn’t stress me out. Just take $20 or whatever every time you get paid and put it away. I kept mine in a pickle jar for a long time, haha. I third/fourth/fifth the Money 101 site, it has cleared a lot of things up for me (and I was lucky enough to have parents who… Read more »

PB
PB
9 years ago

Don’t get a car. A lot of students work very hard at minimum wage jobs, thinking that they are working their way through college, when actually they are supporting their car and its maintenance. Get a job on campus, where you can walk to work, rather than a job in town, where you will need a car to get to it.

Jolyn@Budgets are the New Black
[email protected] are the New Black
9 years ago

I highly recommend J. Steve Miller’s “Enjoy Your Money” as incredible overview of financial principles. I’m going through it right now with my teenager and one of his friends and they are really enjoying it. It’s a very easy read in a conversational format and a perfect intro into finances for “kids” starting out and handling their own money for the first time.

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