By Jett Jewett ’26
This article is part of Northwood School’s Peak Pathways Program—a year-long, student-driven independent study that empowers students to explore topics they are passionate about in depth. Through research, creativity, and real-world application, students take ownership of their learning and produce meaningful work that extends beyond the classroom.
Many Peak Pathways projects culminate during Publication Week, when students share their work with authentic audiences. By publishing in The Mirror, these students contribute to a broader conversation, offering original perspectives, insights, and creative expression to the Northwood community and beyond.
Photo: lifetreeplanner.com/
For most young adults, managing money is not difficult because it is complicated—it is difficult because no one really teaches it. Young people tend to graduate from high school or college with strong writing skills and the ability to solve equations, but without any knowledge of how to budget their money. This is why many young adults become adults unprepared for financial responsibility, having learned some hard lessons the hard way. Spending too much, getting into debt, and not saving money are not accidental things.
One of the main issues young adults face with finances is a lack of tracking their expenditures. Without a proper system, it appears funds are dispersed sporadically. According to the Consumer Financial Protection Bureau, individuals who track their expenses tend to adhere to budgetary guidelines and make informed decisions. This is important because individual purchases tend to accumulate faster than most people think. For instance, spending just $10 daily on food, coffee, or other minor purchases will cost an individual roughly $300 monthly and approximately $3,600 annually. Accumulating over several years, it would be a few thousand dollars that could be put to better use.
The other main problem is the absence of savings. It is commonly thought that young people should not be bothered with saving, as long as they do not earn well enough at their current jobs. However, evidence shows that such attitudes lead to many negative consequences. The Federal Reserve reported that 37% of Americans have difficulty finding the means to cover a $400 emergency expense. It means many people have no financial buffer to support themselves if anything unforeseen happens.
It is equally essential to start saving early because of the power of compounding. Compounding refers to the process whereby money earns interest, and that interest earns interest. In this case, time becomes the critical element as opposed to how much money you have at the start. For instance, investing $1,000 per year into an investment vehicle earning a 5% average return yields $1,649 after 10 years, even without any further contributions. It therefore pays to save and invest in your future sooner rather than later.
Also, spending habits significantly contribute to an individual’s financial success. Young adults struggle to distinguish between their needs and wants, leading them to spend more than they need to. The difference between the two terms lies in their definitions. While needs refer to necessities such as food, transport, shelter, and education, wants include entertainment and luxury items. The Bureau of Labor Statistics reports that a considerable share of expenditure is spent on unnecessary items. Expenditure on the things one wants is necessary, but it should be done without compromising savings.
The area where such habits begin to create consequences is debt. One of the most widely used forms of financing among young people is credit cards. According to Experian’s report, credit card balances continue to increase. The risk in using credit cards arises from interest. Interest will be added to the balance if it is not completely paid. Thus, small amounts of money may lead to larger debts. For instance, an insignificant amount of money not repaid on time can grow significantly due to interest.
Financial planning and setting goals are other vital factors that must not be ignored. Most often, youth make decisions based on their current budget rather than their future budget. Some objectives can help with decision-making, such as saving for college, buying a car, or other future expenses. Once an objective is determined, it becomes easier to save without being extravagant.
Income is also related to financial management, but it cannot be considered the main contributor. Many people believe that earning more will resolve their issues, but without proper habits, income becomes the main driver of increased expenditure. Lifestyle inflation is one example of the same. It means that when an individual earns more money, his expenditure tends to rise as well. Budgeting and saving are necessary for such people, despite a higher income. Thus, one can conclude that habits play a more prominent role here.
The common factor among the above points is that financial failures never result from a single big mistake; rather, they result from consistent small mistakes. Overspending a little or failing to save money may not be taken seriously at first glance, but eventually these habits lead to financial failure. The opposite of it holds as well.
To be honest, no one is flawless in financial management. Consistency is all that really matters. You will make mistakes when you first start, and only those who take heed and build good habits will succeed. The earlier you build them, the easier it will be to manage your finances in the future.
Financial freedom is built on small successes every day. It is good to learn how to manage money while still young so you do not feel stressed, gain control over finances, and create more opportunities for yourself. Even if “adulting” becomes very difficult at times, you need to be financially literate.
Resources
- “Budgeting.” Consumer Financial Protection Bureau, www.consumerfinance.gov
- “Report on the Economic Well-Being of U.S. Households.” Federal Reserve, www.federalreserve.gov
- “Consumer Expenditures.” Bureau of Labor Statistics, www.bls.gov
- “Credit Card Statistics.” Experian, www.experian.com
