Money experts reckon that only 22% of millennials know the basics of financial management. That means that in a group of five friends, only one has a good idea of how to manage his or her cash flow. That is quite scary, right. Kids who don’t understand personal finance grow up to be adults who don’t understand personal finance, and are likely to make poor money decisions.

June is Youth Month in South Africa, and what better time to think about one of the most important life skills young people need. In 2014, the Money Advice Service (MAS) in Britain conducted a study with young people between the ages of 16 and 29. It wanted to find out why young adults get into financial difficulty and how they can prevent getting into bad money habits.

In summary, the study found that:

Young people regretted making bad decisions that spiraled out of control.
Independence was very important to 16-21-year-olds, but they did not think it included being financially responsible.
‘Spend today, worry tomorrow’ was a common attitude, and credit was seen as free money.
Young people thought to be ‘good with cash’ was boring and restrictive.
Young people’s desire to be socially acceptable meant they said ‘yes’ most of the time, even when ‘no’ would have been the wiser option.
Often, young people assumed that even a bad decision would get better with time.
Money was a taboo subject that friends and family did not discuss openly. Many young people did not have a chance to practice money management when they were growing up and the consequences of making mistakes were not so serious.
One of the most important conclusions of the research was the need to re-frame the idea of ‘being good with money’. Instead of feeling that money management cramps their style, young people need to see it as an essential skill they need to become independent.

The research also highlighted that parents, schools and financial institutions need to help young people develop and practice their financial skills and knowledge.

In light of this research, YFN asked a few experts what it is that young people should know about managing their personal finances. Here’s what they told us.

The time value of money

Money today is worth more than money a year from now – and this effect can compound over time. Why? Because investing money today gives you more money in the future, or paying off an Online loan or a credit card today saves you future expenses

Opportunity cost

You have to understand what you might be missing out on when you spend money. For example: if you spend R2 000 on clothes instead of a course, the actual cost is R2 000 PLUS the additional income you would have earned in future from the skills the course would have given you.

Side hustles

Even if you are already working full time, there are often opportunities to make extra money on the side doing something that might be unrelated to your day job. And if you don’t have a full-time job, a variety of small jobs can add up to a good income.

Play the long game

If you can be patient and not hunt instant gratification all the time, your bank balance will thank you. By saving and investing, or simply waiting until the thing you want is on sale, you can increase your returns. You might even discover that you didn’t really want the thing as much as you thought you did, leaving you with cash to spend on something else.

Income vs. wealth

It’s not the same thing. You might think a person who makes R1 million a year is rich, but if he or she blows all that cash, there is no wealth. Likewise, someone who makes R50k can save and make smart decisions that make them wealthy in the long term.