Tuesday, July 5, 2011

4 Pieces of Financial Advice for Students


Dear Investor Juan,

I've been following your posts quite closely for a couple of weeks now mainly out of curiosity on how to make my money grow while I am still at school and unemployed. Investing my hard earned savings into the stock market has been a prospect for some time but I have been unable to pursue it mainly because of my parents, who, at this point, are not too keen into letting me risk my money. So, my question: what are stable investments that I can pursue at this point in my life (20 years old) with around P20,000 to P25,000 that i am willing to invest?

Thank you!


Dear Javi,

I see that you have decided to heed your parents' advice and avoid the stock market altogether--a decision that I fully totally with. To answer your question,

1. Stick with bank deposits for now

Either open a basic savings account, if you don't have one already, or a time deposit account, if you don't mind not having access to your funds for a while in return for higher annual interest (around 2 to 3% compared to less than 1%). Keep in mind that at this stage of your life you should be more concerned about accumulating capital--something you've obviously been successful at, given your current savings--than investing in high-risk, high-return securities, which will come later in life, based on investing guidelines for beginners that I have discussed before. Seeing your capital grow even at a slow rate, or at least remain intact, should help you gain experience and confidence for when you face the challenges and uncertainties of mainstream investing in the near future.

Now that I've answered your question, let me share a few more financial tips for students that you might also be interested in.

2. The best time to learn about "financial stuff" is now

A lot of people lose the drive to learn new things as soon as they get out of school. So if you're not very familiar with the basic concepts of personal finance, then the best time to learn is while you are still in school, while your brain is still primed for both formal and informal learning. You don't even have to take a business course or enroll in a finance class to learn the basics: you can always just borrow (and read, or course) a good accounting and finance book from your library or browse credible, free resources that abound online.

3. Experience how to efficiently manage your scarce resources early in life

One key difference between students like you and a typical investor is that your "earnings" are usually limited to what your parents give you: your periodic allowance plus, perhaps, cash gifts on special occasions. So in a sense, as a student you are like a pseudo wage earner who has to make sure that what you earn is enough for your needs and wants. Most students usually just spend what they get and avoid "real world" concerns--which is all right, really, since strictly they aren't part of the real world yet. However, I would advise you to try to practice financial responsibility--particularly managing expenses and saving--as early as you can with the resources that you have. Anecdotal evidence shows that such habits are developed early in life, and usually with parents acting as guides and models, which means that it may be harder to catch up as you go older.

4. Get a job

In many ways, typical Filipino students have it easier compared with students from other countries like the US. For one, college education in the Philippines is relatively more affordable, particularly in state colleges and universities, so many parents are able to easily shoulder the costs of college education of their children; in the US, students usually have to pay for their own way in college, with money that they've earned and will earn doing odd jobs over their young life and as working students, or with thousands of dollars of student debt. A lot of young Filipino adults even continue to enjoy parental financial support--a place to live, sometimes even allowances!--well into their thirties. Students who enjoy such perks would do well to spend their free time doing productive, paid work like internships, buy-and-sell, tutorials, and online services. Not only will jobs such as these boost your capacity to build up capital, it will also provide you with a good understanding of how challenging things may be after you graduate.

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