Young adults and their money

Among the challenges faced by youth transitioning to adulthood is stewardship. Simply put, stewardship begins with recognizing and internalizing God’s ownership of who we are and what we have. It includes, but is not limited to, material possessions, health, gifts, talents, time, family, and oneself (Ephesians 2:10). Here are four more pointers that top my list when speaking to youth about money (the others were published in the January Herald):

1. One can be “cool” without namebrand clothing and electronic gadgets.

Peer pressure and consumerism have an immense impact on our young people today, draining their cash as soon as they bring home their paycheques. It is not uncommon for young people to own digital cameras, video camcorders, cell phones with digital cameras and messaging capabilities, MP3s, CD players, iPods, PSPs, DVD players, PDAs and laptop computers. Most of them are redundant in terms of the functions they serve. Seriously, do you really need an iPod, MP3, CD player and a laptop to listen to music?

By the same token, many young people want to purchase the same name brand and clothes their friends have. Very often, they will refuse to wear generic brands for fear of disapproval.

The crux of the issue is simple. Do you want to be liked and respected because of who you are, or what you have and what you wear?

2. Remember a car is an expense and not an investment.

Many young adults view automobiles as a way to make a statement about their identity rather than as transport. They will incur significant debt to buy the trendy models, not realizing that expensive cars translate to higher gas expenses, and more expensive insurance and maintenance. Worst of all, a car usually loses five percent of its value the minute you drive out of the dealer’s lot and a further depreciation of another 10 to 20 percent at the end of your first year of ownership.

As a good money steward, you should avoid car leasing and consider keeping a car for 12 to 15 years. For first time car buyers, consideration should also be given to purchasing a quality pre-owned vehicle and let others pay for the steep initial depreciation of most automobiles.

3. Use credit wisely.

You should apply for credit cards that carry no annual fees and avoid using cash advances. The latter can cost you interest. Do not use credit cards for consumer purchases if you don’t think you can pay off the balance when it comes due. Most credit card companies start charging you 15–18 percent annual interest from the date of your purchase if you have not paid the balance by the due date.

With today’s historically low savings interest rates, effectively, the interest charged on any unpaid balance for one billing cycle is equivalent to one year or more interest income earned for the same amount placed in a typical savings account. It’s brutal to think about your financial setback as a result of non-payment.

4. Start contributing to an RRSP with your first paycheque.

Perhaps the best tax shelter for young adults is RRSP. It provides tax deductions and allows the funds to grow tax-free until the age of 71. It also has the option of “borrowing” up to $20,000 from your RRSP to purchase your first home, or to finance training or education for you or your spouse.

Remember the compound interest effect. Start making your contribution as early as possible and avoid investing in high risk instruments within your RRSP portfolio. Any capital loss incurred in your RRSP is not tax deductible.

In conclusion, being a good money steward transcends self-discipline and faith. We must always be thankful and content. As Deuteronomy 8:18 teaches us, “But remember the Lord your God, for it is he who gives you the ability to produce wealth.” And 1 Timothy 6:6 says “But godliness with contentment is great gain.”

This article was excerpted from the August 2005 issue of Chinese MB Herald. The first half appeared in our January issue. David Leung is B.C. stewardship representative for the Canadian conference and was an executive at a Telus company.