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FDIC Consumer News - Summer 2018
25th Anniversary Edition

[1994] A Crash Course for Young Adults Starting to Face the Financial Jungle

Excerpted and updated from “A Crash Course for 20-Somethings Starting to Face the Financial Jungle,” Summer 1994.

According to the Consumer Financial Protection Bureau in 2017, nearly half of student loan borrowers leaving school owed at least $20,000. As a graduate, you also may be paying for a car, rent, furnishings and credit card debt. That's why we offer some basic tips.

Select a financial institution that’s right for your needs, not necessarily those of your parents. Does the institution offer account products that meet your needs, such as free checking with a low minimum balance requirement? What are the fees? Does it offer competitive interest rates on loans? These and many other questions can·be answered by going online or walking into a branch office.

Know your rights and responsibilities if you want a loan. A default on a student loan can result in a bad credit history that can cost you more money down the road, such as when you apply for a loan. Take time to understand your rights and responsibilities and reach out to the lender for help at the first sign you may not be able to make a payment.

Be careful with credit cards. Credit cards can help you establish a credit history. To build a good credit history you can make small purchases and pay off the balance. You may be able to get your first credit card in your name by having a parent co-sign for it. By maintaining a job and paying credit card bills on time, you should be able to get cards on your own eventually.

Take steps to improve a bad credit history. A good credit history will be essential if you are seeking credit to buy a home or an automobile. When debts go unpaid, the interest and the amount owed can increase enormously. If you are having difficulty paying a bill, ask to set up a more convenient payment plan. Creditors are more likely to work with people who try to restructure their obligations, rather than ignore them. Failure to make regularly scheduled payments on a debt will be reflected on your credit record and can affect your future buying power and financial flexibility. Also watch out for marketing scams that offer easy credit, guaranteed credit approval or the chance to clean up your credit history for a fee.

Start saving for your future. Most young adults don't recognize the importance of building a nest egg. When in your 20s and 30s, it's a good idea to put a percentage, maybe 10 percent, of your monthly income into savings and investments. If 10 percent is too much at first, pick a percentage that works for you. Over time, even small amounts will build to larger ones and can help you purchase a house, start a family or be prepared if you find yourself unemployed or temporarily unable to work. Retirement savings plans such as IRAs are examples of accounts you can contribute to and also save money on taxes.

Learn as much as you can about personal finance. Many colleges, local governments and other organizations offer personal finance resources including classes. Also consider visiting your local library. There are plenty of books, magazines and other sources of information that can prove helpful when trying to improve your finances. The FDIC offers free podcasts and an online learning tool. Invest time in your financial education and consider it part of your overall investment strategy.