2 Money Lessons I Share With Students
When it comes to getting students to think about their “adult” finances, I try to emphasize some of the lessons I’ve learned so they can avoid some pitfalls that can set them back from reaching their financial goals. Here are two money lessons I share with students:
Money Lesson 1 – Get Renters Insurance
For the love of Pete, get renters insurance as soon as you move into your first place after your parents’ house or the dorm room.
Why do I emphasize renters insurance? Two major reasons: (A) Cost-Benefit Analysis and (B) My personal experience.
As far as the cost-benefit analysis of renters insurance goes, most policies are less than $20 a month (usually closer to $12-$15) and can help offset thousands of dollars in out-of-pocket costs in case of loss or liability. In general, many types of insurance are used to protect our wealth and the thought of replacing stolen items or damage to the apartment can be detrimental to young people beginning their “adult” lives.
Of course, each policy is different but it is well-worth a simple internet insurance quote search or asking your car insurance company if you have it. In fact, when I added renters insurance through the same company as my car insurance, my overall monthly cost DECREASED when I added the renters insurance. Why? The “multiple policy discount” completely covered my renters insurance. It’s always worth it to ask.
The second reason I emphasize the importance of renter’s insurance takes me back to December 2011. I came home from the last school day before winter break and something was off. When I opened my apartment door I immediately saw Christmas presents unwrapped and strewn all over the living room.
My first thoughts were completely ridiculous. I don’t have a dog. How did these presents get wrapped? How did a dog get in here and do that? (Yeah, seriously, the dumbest possible conclusion.)
I slowly turned to see the broken door frame and shelves emptied of all movies. I finally realized what happened and called the local cops. The police officers conducted an initial investigation, but my case is still a “cold case.” No Olivia Benson swooping in to crack it wide open. Sigh.
So I was left with a busted door frame and thousands of dollars of missing stuff. Luckily, none of my Christmas presents were stolen because I guess petty thieves didn’t want to take the books and board games I bought. ¯\_(ツ)_/¯ (Maybe that says more about me as a gift giver??)
My insurance company was very easy to work with and I ended up replacing my computer and other electronics without much hassle and a relatively small deductible (of course, make sure it’s worth it to file a claim when you take into account the cost of the deductible and possible premium increases).
Money Lesson 2 – Avoid “Lifestyle Inflation” as much as humanly possible
The basic premise of lifestyle inflation is that as we make more money, our standard of living tends to rise (also known as “lifestyle creep”). This is why even after the thrill of getting a raise wears off, we may still find ourselves struggling to keep up with paying the bills.
Whether it’s an outgrowth of a “YOLO” or “Treat Yo Self” mentality, the bottom line is that many of us naturally spend more instead of maintaining our lifestyle and putting the extra money toward savings. I know I was guilty of this! In fact, my best money year of my 20s was during my first year of teaching. Ironically, I had the biggest savings account balance when I was 23 and it took me almost a decade to get back to that point. (In all fairness, I was hooked up with a sweet living situation with a friend in a condo her dad owned and paid almost nothing in rent, my car was yet to die, and my income was so low for my income-based student loan repayments. Nonetheless, I could definitely have planned better in subsequent years.)
Lifestyle inflation can be insidious because we usually do not realize we are doing it. Expensive meals, new clothes, and upgrading our car every two years can become the norm and we are desensitized to our increased spending. Or we feel pressure to accelerate our spending to keep up with friends and rivals alike.
It’s incredibly important for young people (and I guess all of us in general) to realize our opportunity costs and prioritize our spending and goals to optimize our happiness. Ideally, all or at least most of our raises should be directed into retirement accounts (You set of one of those up right away, right students?!), savings accounts, or investments while we maintain our current living standards. I’m not saying that we should never spend money on fun vacations, new cars, or designer clothes necessarily, but we should definitely save for “luxury” spending, prioritize our purchases so that they’re in-line with our values, and be mindful of how we are directing any increases in income.