Helping Young People Plan for Their Financial Futures

February 21, 2024

Is a young person in your family getting ready to leave the nest? The Economic Education team at the St. Louis Fed has some helpful information for young adults who might be deciding on early career jobs, figuring out how to handle credit cards as they start looking after their own finances, and even planning for retirements that right now might seem too distant to contemplate.

Check out three of the Page One Economics articles by senior economic education specialists posted in the last few months—and nudge the near-fledgling to take a look. Each article provides a short, simple overview of a current economic topic. The ones highlighted below are all part of the Focus on Finance series covering personal finance.

The Trade-Off Between Fun and Wages Is Real

An age-old question has tormented many prospective artists and actors: How can I make a living doing what I enjoy?

That’s not just a question for those mulling whether to pursue a Bachelor of Fine Arts. After all, the average U.S. worker spends almost a third of their waking hours at a job, as this article by Mary Clare Peate points out. Compensation, including the salary or wage along with any benefits, is one of the tangible benefits of a job to consider. Intangible benefits, like interesting work, also are “extremely important,” Peate writes in the October 2023 article.

Among the tangible benefits—or those that can be easily translated into a dollar amount—are health care plans, paid vacation, educational subsidies or a retirement plan.

Intangible benefits are harder to translate into dollar terms and are sometimes overlooked, the article says. Flexibility, such as the ability to work from home at least some of the time, is one kind of intangible benefit. Others are work that is fulfilling or fun and the ability to learn skills that many employers might find desirable.

The tangible and intangible benefits are “really the true total compensation for the job,” the article says.

“Some jobs may have lower pay, but their great employee benefits or interesting, rewarding, or flexible work might be worth the trade-off!”

Credit Cards: The Trillion-Dollar Debt

As young people start to take on their own expenses, they may look to credit cards as one way to pay for groceries or bills. But how might they avoid paying too much in interest or fees?

As credit card debt in the U.S. reached record levels last year (for example, see the FRED chart below), a December 2023 article took on the topic of credit cards. The article, by Jeannette Bennett, addresses credit card history, statistics and usage, as well as reasons for the increase in credit card debt.

Those reasons include an increasing number of credit card accounts, inflation, higher interest rates and credit card account management. While many factors are out of individual consumers’ control, managing credit card accounts isn’t, the article says. Consumers can choose the types and numbers of cards they want and how much to spend on them. They also can decide on a strategy for paying off credit card debt, a topic covered in a February 2023 Focus on Finance article.

Credit card laws add protections, the December article says, but consumers are responsible for knowing what’s involved in using the cards.

“It means you must pay a bill every month for all the things you purchased,” the article says. “And it’s important to remember that if you don’t pay for all the things you bought by the due date on a statement, those things end up costing much more than their original price because of interest and fees.”

Retirement Account Basics

To a 20-something juggling rent and other bills, saving for a retirement that’s decades away may not seem like a priority.

“It may feel like saving a small amount of each paycheck won’t make a difference, but the sooner you begin saving for retirement, the longer your investments have to earn a return,” this February 2024 Page One Economics article by Amanda Geiger says.

The article, whose full title is “Retirement Account Basics: Why You’re Never Too Young to Start Thinking About Retirement,” gives information on basic retirement savings accounts, including employer-based plans and options for small businesses and self-employed workers.

The article discusses two general categories of employer-based plans:

  • Defined-benefit plans, commonly called pension plans: The employer sets aside money for eligible employees and invests it on their behalf for a monthly payment when the employees retire.
  • Defined-contribution plans: Employees set aside money and decide how to invest it. The most common kind of these plans is a 401(k). Many employers match the employees’ contributions up to a certain percentage.

The article also compares traditional retirement accounts with Roth retirement accounts, whose contributions are taxed at different times, as the infographic below explains. There are traditional and Roth versions of defined-contribution plans and of individual retirement accounts, or IRAs.

Contributions are made into traditional accounts before income taxes are paid; with this type of account, income taxes are paid when the money is withdrawn during retirement. In contrast, contributions are made into Roth accounts after income taxes are paid, and withdrawals during retirement are income tax-free.

Traditional versus Roth Retirement Accounts

Infographic shows at time of retirement income taxes are paid on withdrawals for traditional contributions but not for Roth contributions since money was taxed before going into the Roth account.


SOURCE: February 2024 Page One Economics article by Amanda Geiger, “Retirement Account Basics: Why You’re Never Too Young to Start Thinking About Retirement.”

The article suggests seeking advice from a trusted professional to feel confident in understanding retirement savings options.

“Though retirement may feel a long way off, the more you begin to think about it and plan now, the more choices you will have later in your career when it comes to determining what you want your retirement to look like,” it says.

This blog explains everyday economics, consumer topics and the Fed. It also spotlights the people and programs that make the St. Louis Fed central to America’s economy. Views expressed are not necessarily those of the St. Louis Fed or Federal Reserve System.

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