Mitigating the Impact of the Gap Year through Financial Literacy

putting a coin in a piggy bank

When you’re still in school, your needs are different from those of an adult. Student estate agents can easily find you all-inclusive accommodation because there are fewer complicating factors. Whether you get money in the form of allowance from parents or a loan, you can look forward to regular income.

These factors are bound to change when you enter the adult world. Getting a job and having full responsibility for your upkeep and lifestyle maintenance makes the complexity level soar.

One way to cut through that mess and keep you from running into any difficulties is financial literacy (FL). It’s not just something you need in the distant future when you’re planning for your retirement. The sooner you start learning this discipline, the better.

A definition of FL

FL, in the simplest common definition, refers to one’s understanding of personal finance, the means of using it, and a healthy attitude towards money overall. Thus, while it includes common best practices such as saving money and paying bills on time, it also requires a greater familiarity with financial products and concepts.

Being financially literate gives you the confidence to seize opportunities and take well-informed risks to build wealth. It often spells the difference between living from paycheck to paycheck and having true stability in terms of money.

Unfortunately, illiteracy in this domain has been a growing problem among the youth of today. And this effect is further amplified by socioeconomic standing, age and family background, and educational attainment.

It is arguably the mechanism behind the common observation that ‘the rich get richer.’ Having a significant advantage to begin with also gives you a greater knowledge of magnifying that edge. Lack thereof puts you at further risk of sinking into debt.

money and calculator

Current and future problems

Today, an estimated 70% of adults in the US alone are having difficulty with at least one aspect of FL. That statistic is worrisome enough, but the real burden lies with the next generation of workers.

The youth who are still in high school or college today have a longer life ahead of them and further travel along their respective career pathways. Financial decisions they make today or soon will thus have a vastly greater impact over time. Yet the money advice they receive is largely at the mercy of older generations who are themselves struggling in this area.

To make matters worse, the pandemic has effectively enforced a gap year for this young demographic. Amid school closures, many have been unable to transition to online learning, disproportionately represented by low-income families. Over half believe their education will be delayed and report having learned less. Everyone is facing worse job prospects in a world with Covid-19.

Actionable steps to improve FL

The takeaway from this is clear: for young people, the best time to learn FL was yesterday. The next best time is today.

The digital age gives us easy access to more information than previous generations might have enjoyed in this regard. You have to find reliable sources and dig deeper. Go beyond the commonly circulated tips and best practices, and listen to podcasts that teach FL.

Those who lack reliable internet access during this pandemic can buy or borrow books on FL. Staples like Your Money or Your Life and Rich Dad, Poor Dad aren’t going out of print anytime soon. They offer actionable advice to help you stay out of debt and manage expenses relative to cash flow.

We can’t absolve our institutions of the responsibility they have for ensuring that FL is taught as early as possible in the school system. Unfortunately, apportioning blame does nothing to solve the problems we face today. Take steps now to address the problem and avoid bigger complications in the future.

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