From mother to daughter: 4 things every young woman should know about managing money

By Merissa Perkins, CFP®, Wealth Advisor

Each one of us has valuable financial lessons we’ve learned along the way. Some came at just the right time and set us up for lasting financial security. Others were learned the hard way and took years to undo. The point is, the financial decisions we make today can have a large and lasting impact on our quality of life, for both good and bad, for decades to come.

For girls and young women, those financial lessons take on particular importance. Although women have made huge strides in terms of career advancement in recent decades and many are the “breadwinners” in their families, women still only make 83 cents for every dollar earned by men, according to the U.S. Census Bureau. To this day, women too often have little input into the financial decisions made for their families.

As a CERTIFIED FINANCIAL PLANNER™ and a single mom of a 19-year-old daughter who will soon be heading back to college, I reflect on the lessons I’ve learned about managing money, and the advice I have to share with her. Some things I was taught, some were learned through life experiences, but all are lessons that I firmly believe every young woman should know when it comes to money:

Use credit wisely and keep a close eye on your credit score

Like many young adults, I just couldn’t resist the really cute overall jeans and the expensive centerpiece for my dining room table. I knew I didn’t need them, but I wanted them so badly. Plus, I had this shiny new credit card just waiting to be used. Unfortunately, I was careless and missed a payment or two, resulting in late fees, compounding interest, and higher minimum payments being required…as well as dings on my credit. That took years to undo and build the good credit score I enjoy today.

My lesson is this: use credit wisely, right from the start. Remember that interest compounds (and is often quite high with credit cards to begin with, especially when you are young), so take into account how much you will actually be paying in the long run and do whatever you can to pay off your balance each month. If you can’t, try to make more than the minimum payment, and make sure you don’t miss a payment to avoid high late fees.

Treat your credit score like fine China, as it only takes a short time to ruin it and years to build it back up. I learned that the hard way. Your credit score impacts everything from your interest rates for loans to your car insurance rate and can even impact whether or not you can get certain jobs. Protect it.

Don’t shy away from hard work … it can pay off in the end

I am the oldest of three siblings and grew up with a single mom who worked multiple jobs to try and put food on the table and keep the lights on. Sometimes we ate peanut butter sandwiches in the dark.

When I was a teenager, my mom told me that she would have made more on public assistance than working. I asked why she chose to work multiple jobs when she could have stayed home with us and made more money. She explained that while that would have been easier in the short term, it wouldn’t have allowed for raises or bonuses, and there certainly would have been no opportunity for advancement. I watched my mom work hard, take classes, learn new things and eventually advance her career into an executive position. She was right. Her hard work paid off in the end.

What I learned from my mom is to take pride in earning your own money. Don’t be afraid to work more than one job if you want/need to. Everyone has to start somewhere, and virtually no one starts at the top. Take that extra class, ask questions, find a mentor, learn as much as you can and never stop growing. Financial security begins with a strong work ethic.

Talk about money with your significant other … right from the start

I thought I knew everything about my partner before I got married, but I had no idea how hard it was going to be to combine my financial situation with his. We had very different views about spending and saving, and like many couples, it caused stress on the relationship, especially when money was tight. In the end, it was one of the factors that led to our divorce. In fact, financial issues are a leading cause of divorce among many couples.

The lesson learned is don’t be afraid to talk about and ask about your partner’s financial situation and how that person feels about finances, spending and saving habits, debt, income, etc. Keep open lines of communication and try to agree on shared goals and how you will achieve them together. Discuss and plan for how you will navigate a financial setback (because this will inevitably happen) and if your emergency fund is adequate. These conversations should start early on in a relationship, and not after you are married or cohabitating. Doing so will help set you up for financial, and relationship, success.

Trust and depend on yourself first and foremost

Ultimately, financial security is about financial independence. My advice to my daughter, or any young woman, is to never find yourself in a situation where you feel you are trapped financially. Whether that’s in a relationship, in a job, or anything else. Take the steps to ensure you are financially independent, today and for the long run. I never want my daughter to feel “stuck” like I once felt.

Financial independence starts with trusting in yourself, and both literally and figuratively investing in yourself. Don’t allow yourself to get to a point where you feel stuck because you aren’t financially independent. How exactly do you do that? Below are a few suggestions:

Start investing early and diligently. Invest a portion of every paycheck before you even know it’s there through 401(k) contributions if you’re eligible (or a traditional or Roth IRA). Start as soon as you possibly can. You’ll be amazed at how much money you can earn over time through the power of compounding. Doing so can set yourself up for long-term financial security
Continue with your education. Earn the degree or credential that will allow you to pursue that dream job. Do the research to know what the ROI on continuing your education will be over time. Don’t quit.
Work closely with a financial advisor. Don’t defer to your spouse or partner when it comes to managing money. Have a “seat at the table” for every conversation and every decision. Know exactly how much money you have, how it’s invested, and what your goals are.
Have a budget. Carefully track your expenses and understand how much money you have to spend each month. Allocate a portion of that budget to savings and retirement (a big portion). Stick to it.

In summary, I never want money to be a taboo topic for my daughter, but rather a topic that is discussed openly and candidly with those she loves and trusts. I want her to feel confident in her financial future, to feel she truly owns it. That is the greatest lesson I have to offer.