Articles Summary
The main point in the current article is to develop an attitude towards the savings at the early age. The sources of finance at the early age are very limited and it is very important that the individuals must plan their important needs accordingly. According to the article, the important needs such as higher studies, important assets and the good credit history must have a proper financial plan. The planning must cover all risks, including recessions, inflation and the time value of money. The idea of savings from the early life can help anyone in achieving the goals such as buying home, education, higher studies and starting a new business. Therefore, it is very important for the young generation today to develop an attitude of savings to increase their own bank statement instead of searching for business loans or student loans. By developing savings attitude the young generation will be in a position to reduce student debts and can earn more money from their jobs. (Boshara, Emmons 2015)
Another main point in the article is that the family collective improves the financial position of the family instead of individuals. For example, if the husband and wife, both are earning then it is very important for them to analyze the future expenses of their children for a proper investment or saving program. It is in a view that the expenses of children are low at the small age, however, with the passage of time the expenses starts to grow. Therefore, the parents must consider any savings plan for each of their children to make sure that at maturity, the saving plan covers the university fee or any other expense effectively. Practically, the school education or elementary education is free in most of the countries. Therefore, it is the right time to invest in the child saving accounts or other government schemes for children. The profits on these schemes can increase the principal amount annually. Moreover, the tax rates are low or nil on the saving accounts or children. Therefore, the financing plan from the family can reduce the debts of higher education. (Boshara, Emmons 2015)
Another main point in the article is about the diversification of the assets or the balance sheet. It is a pure financing technique to reduce the investment risks. The future is uncertain and the current financial crisis, recession, government policies, inflation and interest rates can reduce the planned return on the long term investments. Therefore, in these circumstances, the article suggests that the families must make investments in different financial institutes, saving plans and companies to reduce the chances of risks in the future. The investments in one same saving plan can create problems in case of any change in the policy or any other economic effect. Therefore, this point can be utilized in the real life by investing funds in different types of assets. For example, the families can invest their funds in gold, stock shares, debentures, investment properties, security bonds and saving bank account. By diversifying the assets, the chances of risk in the future will reduce because if one asset is in loss, then other assets will generate income. Therefore, the diversified balance sheet can assist families to maintain good and constant income for the family. (Boshara, Emmons 2015)
Another main point discussed in the article is that the individuals in 20’s and 30’s are having poor balance sheets as compared to the older citizens. The main reason of the poor balance sheet is that the liability portion is heavier than the asset portion. Moreover, to repay the liability, the assets are weak and not profitable. According to the article, it is very important for the young individuals to reinvest their savings instead of depositing in the banks. The interest rate of banks is lower than the interest rates on the bonds and other securities such as dividend incomes. To maximize the income from the savings, the young generation must reinvest their income in those financial plans, which are at least equal to the interest rate of the liabilities. For example, if the interest rate of debt is 10%, then the investments must be made in the financial schemes with the similar rate of return. In case of dividend income, the individuals can invest in the group of those companies which are paying more dividends as compare to other companies to maximize the profits. (Boshara, Emmons 2015)
In the current article, the writer discussed about the use of credit cards and other loans by the young generation. It is very important to understand that the use of credit card for buying small or useful assets is beneficial. For example, the purchase of air tickets and laptop are two common examples. The use of credit cards for small assets can help to increase the credit limit of the credit card and also improve the credit history of the individuals. The main reason is that the small asset bills can be returned easily or within the one month time. The main idea is that when an individual starts first job, he must reduce using the credit cards for expensive assets such as a car or other similar assets. The balance between the salary and the credit card payments must be properly managed to reduce financial problems. The misuse of credit cards can create problems for the user. (Boshara, Emmons 2015)
References
Boshara, R., & Emmons, W. R. (2015). A Balance Sheet Perspective on Financial Success: Why
Starting Early Matters. J Consum Aff Journal of Consumer Affairs, 49(1), 267-298. doi:10.1111/joca.12056
