Why New Grads Can't Afford to Short-Change Their Financial Educations

There's no doubt that the world is a very different place now than when I graduated. For one thing, because the cost of college was so much lower, I didn't graduate with tons of debt. All you have to do is compare tuition and fees at Cal Berkeley then and now. If I remember correctly, in the early '80s it cost me $250 per quarter, whereas today it's close to $14,000 a year—just for tuition and fees! But that wouldn't be news to today's graduates. They know the costs—and they know the crushing burden of student debt.

Graduates today have to deal with a financial reality that goes beyond what their first job pays. They have to look at how to balance income and debt, current wants and future needs, and how to handle it all without getting overwhelmed. And to me, the best way to do that is through financial education, which simply means learning as much as you can about managing money as early as you can.

Of course, you'd expect me to say that, right? After all, expanding financial literacy is one of my major interests and passions. But a recent study entitled Optimal Financial Knowledge and Wealth Inequality by Annamaria Lusardi, Pierre-Carl Michaud and Olivia S. Mitchell really underscores why this is important. Their research shows that people with greater financial literacy are more likely to participate in the stock market, get better returns on their portfolios, are better able to manage debt, and are more likely to plan for retirement. In fact, the authors estimate that 30 to 40 percent of retirement wealth inequality is accounted for by financial knowledge.

Okay, so at 22, retirement is a long way off. But setting yourself up for financial security starts now. And the sooner you realize that—and act on it—the better.

You can start simply. There's tons of information available. For instance the Schwab MoneyWise website is geared especially for young adults just starting out, as well as financial novices of all ages. And it's not esoteric stuff; it offers practical suggestions for how to take control of your finances now and at each step on your financial path. That's only one website. Seek out others. Read everything you can get your hands on. Soak up the knowledge.

Then take it a step further and get some objective advice. You might think you don't have enough money to seek out a professional, but don't let that stop you. There are a number of banks and brokerage firms that offer free consultations. Or you may even start with a parent or relative who knows the financial ropes. I really like the idea of having a money mentor—someone you trust who has the knowledge and experience to answer your questions, no matter how basic or complex. People often turn to a personal coach or a career counselor, so why not a money mentor?

In fact, this is something I wish I'd done earlier. I had my broker’s license at 23, so of course I thought I was ahead of the game. And while I could have turned more often to my dad, like so many young people, I didn't. I saved and invested on my own. But as my life got more complicated, I realized that I wasn't as attentive to my finances as I knew I should be and really needed someone with an outside, unemotional view to help me. By that time I was in my 40s, and I ask myself why it took me so long.

Another point I really want to make is that this isn't just about the future; this is about today. There is so much more at stake financially now that, even if you're uncertain of your future goals, you have to take control of your money from day one. So what does that mean? If I had a magic wand, every 22-year-old starting a new job would calculate their expenses and make a budget they could live with; they'd figure out how to systematically pay down debt; and they'd have an emergency fund to cover unexpected expenses. And then I'd ask each one to make a personal commitment to save a certain amount each month as well as contribute to a retirement fund. Most importantly, I'd help each new graduate to learn to invest.

I know that sounds like a lot, but it doesn't have to be done all at once. I recently wrote a post about the idea of a financial cleanse—establishing one positive financial habit for 30 days until you've made it a natural part of your routine. I like the idea because it makes financial improvement tangible and gives you a real goal to work toward.

Finally, financial education is cumulative. It doesn't end when you have the basics. Rather it's lifelong learning. But starting early can make all the difference in the world—the difference between struggle and security, between dependence and freedom, between merely dreaming and making your dreams come true. For your own sake, start now.

Carrie Schwab-Pomerantz is president of Charles Schwab Foundation and senior vice president at Charles Schwab & Co., Inc., Member SIPC. Charles Schwab Foundation is a 501(c)(3) nonprofit, private foundation that is not part of Schwab or its parent company, The Charles Schwab Corporation.