To the teenagers, 20-somethings, 30-somethings, and those willing to pass these thoughts along to these groups:
Public health and prevention have been synonyms for a long time. The field of public health often strives to prevent or modify the causes or presumed causes of illness to improve the health of a population. Snooze, I know, but bear with me.
For example, public health professionals recommend avoiding prolonged exposure to the sun because it can increase your risk of skin cancer (One reference of many: Ananthaswamy HN. Sunlight and Skin Cancer. J Biomed Biotechnol. 2001;1(2):49. PubMed PMID: 12488608; PubMed Central PMCID: PMC113773.) Many people accept this advice and alter their behavior to reduce their risk of skin cancer. However, many people do not react to this advice until their doctor tells them that they have skin cancer. Suddenly, this latter group of individuals becomes a sunscreen-wearing, light-avoiding, beach-hating hoard (probably not in my experience, but there are always those who are willing to take heed). However, the damage has already been done and what could have been prevented must now be treated. The payoff of prevention has become null.
Personal finance has a resemblance to health and in fact, can be significantly impacted by health (if you are in my age bracket and like me, you probably have not thoroughly considered that becoming severely ill equates to not working and making money; additionally, being mildly or moderately ill likely means you will spend some amount of money to get better or maintain your health so that it does not deteriorate further). The public health professionals of personal finance warn everyone to spend less money than they earn, avoid acquiring debt, and to save at least 10% of their income. We hear and understand this advice, but we don’t live it. That is, until a cataclysmic life event like divorce, illness, or job loss slams into us and we are motivated to move to a smaller home, trade in our car, deposit more money into our emergency fund, and save for retirement. So here is a very unoriginal proposition framed in a slightly more original way using public health principles. To all the teenagers, 20-somethings, and perhaps even 30-something folks: let’s prevent instead of treat.
Just as a disease can be prevented, let’s view bankruptcy, foreclosure, and the whole host of other depressing financial predicaments as preventable diseases. We could even expand this public health analogy to include financial dependence and inability to retire as preventable diseases. We’ll stick with bankruptcy to explore this analogy. If bankruptcy or financial ruin is skin cancer, debt is sun exposure, and a sun screen must exist for this analogy to work. Lucky for us, just as there are many sunscreens to choose from at your local pharmacy, there are many ways for us to minimize or avoid debt. Purchasing a car without a car loan by avoiding brand new expensive cars that we cannot afford yet is one way (i.e., purchase a used car with cash). Purchasing a home without a home loan (no, this is not outrageous) is another way (i.e., save up until we can actually afford the entire price of the home, not just the down payment). Attending a state college or university as an in-state student to minimize the cost of tuition is yet another way to minimize debt even if we must take out student loans (assuming that college is the best choice for us in the first place!). The common theme is purchase what you can afford without borrowing money unnecessarily, understanding that education is one of the only real reasons that a person should incur debt and even this debt must be minimized as much as possible through selecting an educational institution based on value (quality/cost). But why does the debt-caused financial cancer matter so much? The answers are interest and risk.
In one striking example (click here), we can see that the interest we pay on borrowed money is much more than we usually realize. Borrowed money (read: loans) comes at a very steep cost. The risk of borrowing money is also very high. Upon losing one’s job or experiencing a similar income-reducing event, the debt-caused financial cancer spreads and bankruptcy ensues (kind of like organ system failure secondary to cancer). It is when the cancer spreads that we finally move to a smaller home, trade in the unaffordable car, stop eating out at restaurants, and accept that everything does not need to be brand name if we even need it at all.
So here’s the public health-driven question: What if we start our young adult lives with a preventive mindset by living in the smaller affordable home, buying a used car that we can afford with cash, biking to places within four miles of our home, and embracing methods of debt avoidance/minimization? When did we begin to think it was normal to accrue debt so that we can have flashy homes, cars, and trinkets at the beginning of or prior to our working careers when anyone observing us knows that we can’t possibly afford those things yet? We would think it was odd for someone to purposefully try to develop skin cancer, but we engage in personal finance ruining behavior without a second thought.
Public health also teaches us that prevention is most impactful when you have lots of time left in your life. Many public health campaigns reasonably target teens, 20-somethings, and 30-somethings. Therefore, we need to do ourselves the greatest public health personal finance favor we can and Google* the words “compound interest.” Once we’ve done that, this should be followed by another Google search for “index funds and investing.” Why? Because the earlier we start putting all that money we would have been paying in interest into index funds instead, the easier it will be to maximize the benefit that our savings can give us. If you’re worried about the risk of index funds, realize that debt is in many ways much riskier than any investment you could make in an index fund.
Someday, when we have successfully prevented ourselves from accruing debt, have diligently saved, and wisely invested our hard-saved money, we can choose to have the flashy home or car or trinkets or all of the above. Or, we can choose none of the above and decide that we want time, whereby we retire at 35 or 40 years old to raise children ourselves (yes, it’s possible to do this without child care), spend time with family, and have a life not built around work (even if you love your job).
The bottom line here is use the principles of public health to prevent financial cancer and achieve financial independence (the equivalent of perfect cancer-free, high-quality life in our analogy). To learn more about this, I refer you to a wise man with a fun name: Mr. Money Mustache (click here) and friends, G.E. Miller (click here) and Jacob (click here).
Here’s to prevention.
Love,
A twenty-something with some healthcare knowledge and a lot to learn.
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*This content is not provided by, affiliated with, or commissioned by Google. Opinion’s expressed here are the author’s alone and have not been reviewed, approved, or otherwise endorsed.
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