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Every Monday, we address one of your urgent financial questions by consulting a group of finance experts for their insights. If you have a general financial inquiry, a concern, or simply wish to discuss anything related to personal finance, feel free to leave your question in the comments or reach out via email at [email protected].
This week's inquiry comes from Jose Martinez, an economics teacher in Denver, Colorado:
I'm always seeking effective advice for my soon-to-be-graduated students on how to build wealth early in life, especially considering that many will face difficulties just paying their bills due to the skyrocketing housing market here in Denver. In the past, we encouraged students that attending college was the key to financial success. While this may still hold true for many, I’m curious to explore how we can assist students who have no interest in traditional college routes—or higher education at all.
Here's what various experts generally have to say about this matter, which varies for each individual—if you require specific advice, it's best to consult with a financial planner.
Think Beyond Conventional Paths
It’s difficult to argue against the idea that a student would be worse off by attending college, especially with statistics supporting its benefits. For instance, according to the Bureau of Labor Statistics, individuals with a bachelor’s degree earn a median weekly income of $1,156, while those with only an associate’s degree make $819 (this drops to $756 for those with some college education but no degree).
However, a four-year degree is not the only route to success, and for many, especially those unable to afford higher education or burdened with massive student debt, it may not be a realistic option. What’s crucial is that if they do attend college, they are committed to completing their degree and fully understand the debt they’re incurring. You don’t want to start, only to realize it’s not for you, and then find yourself with tens of thousands of dollars in debt for a degree that won’t provide any real benefit.
This is why it’s important to remain open-minded and consider alternative routes. We've often been taught that success follows a predictable path: high school to a four-year college, then onto graduate school or into the workforce, gradually climbing the ladder. But that’s rarely the reality, and it doesn’t have to be the case for your students. It’s difficult to dismiss the notion that college is necessary for success, especially since many industries still hold onto this outdated standard of success and respectability. Yet, there are industries where a degree (or even a degree from an Ivy League school) is not required to achieve success.
“There’s significant earning potential in trades like carpentry, plumbing, HVAC, electrical work, and IT, all of which don’t require traditional schooling,” says Eric Jorgensen, who joined the Navy at 17, later became a journeyman electrician, and eventually earned two Master’s degrees before becoming a CFP. “A word of caution, all of these paths will require hard work in the beginning, but in my experience, the more you invest yourself, the faster you’ll move on to more complex tasks.”
That being said, it's important to remember that your students don’t need to have their entire future figured out at the age of 17. The 2017 Teens and Money survey by TD Ameritrade offers insight into how young people are approaching life after high school: a third of respondents said they were considering taking a gap year between high school and college, an idea that’s been growing in popularity in recent years (see: Malia Obama) as students and parents navigate the rising costs of higher education.
During that gap year, students can work (and ideally save), travel, or develop a variety of marketable skills. They might also opt to take courses at a community college, allowing them to save time (and money) by avoiding costly prerequisites at a more expensive university that don't significantly contribute to their lives or resume.
As Roger Whitney, a financial advisor from Fort Worth, Texas and host of the Retirement Answer Man podcast, pointed out, students don’t have to finish their degree in four years. They can begin at a community college or extend their degree over more years, allowing them to work while studying to minimize student debt.
Another key finding from the TD survey: 20 percent of respondents mentioned technical or trade schools as a viable option. While those with bachelor’s degrees generally earn more than those without, this isn’t true in all fields, says Brianna McGurran, a student loan expert at NerdWallet. “For example, airplane mechanics earn median salaries of $60,000 annually with just a mechanic’s certificate and 18 months of experience,” says McGurran. Many community colleges also offer vocational training, which can often be covered by federal financial aid such as a Pell Grant.
Occasionally, scholarships may still be available even if a student isn't attending college that year, allowing them to make a case for continuing to receive financial aid. Additionally, students can apply for other scholarships, like the Work Ethic Scholarship Program, which provides financial assistance to individuals pursuing trade skills.
Wealth Building for the Younger Generation
Now, on to the more practical side of things: when it comes to building wealth, the tried-and-true methods still lead the way: Create a budget, open a retirement account as soon as possible, work diligently, and live below your means. For your students, this might involve relocating from Denver at the start of their careers, or taking on a side job for some extra income. Like every previous generation, it’s a long-term process—this is why accumulating wealth is often described as 'building'.
That said, it’s commendable that you’re already thinking about this part of their lives, as now is the perfect time to establish lifelong financial habits.
“To create wealth, focus on how you can save consistently and effectively,” says Chantel Bonneau Stewart, a certified financial planner and wealth management advisor at Northwestern Mutual. “It’s essential to develop good financial habits when you're young, so even if you can’t afford to save a lot at first, start small and build on that positive habit.”
For instance, try setting aside $20 each month into your savings or an IRA, and make it a goal to gradually increase that amount. The key is to establish the saving habit while you’re still young.
These are crucial skills to develop if you plan to go to college, where you may find yourself living independently for the first time. However, they’re also important if you decide to stay at home. “They should create a plan for building their financial independence while living at home, with the aim of eventually moving out,” says Bonneau. “This should involve contributing to household bills and rent to get accustomed to that responsibility.” Bonneau provided this budget sheet, which is quite detailed for a new high school graduate.
Krista Neeley, managing vice president of Appreciation Financial, recommends explaining to your students that personal finance doesn’t have to be daunting or overwhelming—in fact, learning to manage money is empowering, even if you don’t have a large income. Shifting your mindset won’t solve everything, but it can significantly contribute to achieving financial stability.
“I believe most people find saving hard because they view it as a loss, rather than a gain,” she explains. “Many of us prioritize instant gratification over long-term benefits. When we think of savings as something being taken from us instead of a gift we’re giving ourselves, it becomes harder to save. With all the bills and financial responsibilities we face, we sometimes forget to prioritize saving for ourselves.”
She stresses the importance of saving early, emphasizing that it’s the single most crucial thing anyone can do. Don’t put it off.
Consider opening a Roth IRA, a popular investment option that has been gaining traction in recent years.
“Although an IRA is primarily designed to help you save for retirement, you can withdraw the funds you’ve contributed to a Roth IRA at any time without facing penalties, making it a useful backup savings option,” explains McGurran from Nerdwallet. “Your savings will grow quicker than you might anticipate.”
Much of this comes down to understanding yourself and what you want from your career and financial situation. Quoting billionaire investor Warren Buffett, Steve Millstein, a CFA and CPA who runs the personal finance blog Credit Zeal, advises young people to invest in themselves.
“When I talk about investing in yourself, it doesn’t necessarily mean following the traditional path or pursuing a college degree—this is just one of many possible options,” says Millstein. “With the abundance of free online courses available, there’s no excuse not to be a lifelong learner and continuously improve your skills. Once you’ve upgraded your skillset, consider starting a side hustle to create an additional income stream, which can give you a real advantage. The key is to keep learning and commit to being a lifelong learner.”
