10 Financial Mistakes Young People Make

10 Financial Mistakes Young People Make

Written by Caitlin Wood
Last Updated June 2, 2021

Young people often enter adulthood without getting very much helpful financial advice. There are a lot of pitfalls that can trap a young adult. Avoiding these mistakes can make a huge difference in a young person’s financial security.

Investing too much in a house or condo.

There’s a great temptation, when buying a first home, to stretch to buy the nicest home with the highest payments that can possibly be made each month. If a young person has managed to save a small nest egg, it should not all be used to make a down payment. Being over-invested in a home can make it terribly hard to deal with situations that may arise, such as the need to move quickly to another region, or an unexpected job loss or family illness.

Ignoring the need to save for retirement.

It’s common for young people to think of retirement as being very far away, and to view retirement savings as something they can think about later. On the contrary, it’s important to start saving at least a small amount regularly. Young adults should take full advantage of any savings plans offered by their employer, such as an RRSP.

Not having a budget.

If you don’t have a budget, you are going to be surprised again and again by your account balance at the end of the month. Setting up a budget really helps to plan out how much you need to set aside for different categories of spending. You will have a much better idea of how much you can afford for new expenses, such as a mortgage or car payment.

Using credit cards too freely.

Too many young adults are tempted by the many credit card offers they receive. They may start spending a lot on one or more cards, thinking, “Oh, I’ll pay this off when I get my raise.” This can be a slippery slope into massive debt with high interest rates and should be avoided. View your credit cards as a convenient payment method, and pay off the total balance every month. Avoid these other mistakes as well.

Trying to get by without health insurance.

Young adults feel that nothing bad will happen to them. Some give in to the temptation to skip having any health insurance. This is a terribly dangerous gamble to take. Young people can and do get sick and have serious accidents; big debts to hospitals and doctors can follow a young person for decades and ruin the chance to save money and get ahead financially.

Not having an emergency fund.

Spending right up to the limit is an unwise choice that a surprising number of young people make. With no emergency fund of liquid cash set aside, a young adult may have no option in a crisis other than to borrow money at high interest rates from credit cards or short-term loan companies.

Going deeply into debt for college costs.

While it seems that everyone goes into debt for college, that doesn’t make it a wise plan of action. Young people may graduate and have a hard time finding a job that pays enough to allow them to make payments on their student loans. Students should absolutely minimize the amount of education debt that they incur.

Paying monthly for a high rent apartment.

It’s natural to want to live in the nicest place that you can possibly pay for each month. Young people make the mistake of stretching their finances so far on rent payments, that there’s no money left over each month for anything else. Then they can’t save enough to buy a home, or deal with a financial emergency. They may be stuck in a circular financial pattern where they are never really able to move upwards.

Not saving money every month.

If you aren’t saving some money each month, you really have to make a fundamental change in your spending ASAP. As soon as you reduce that spending, or work a few extra hours to achieve a higher cash flow, consider setting up at least a small automatic monthly transfer from your checking account into a savings account.

Having high car loan payments.

Car loan payments cause many young people to be unable to “get their heads above water” financially. A car is an asset whose value starts to go down the day the car is purchased. Young adults who go out on a limb to make big payments on a new or nearly-new car are often left a few years later with a car that’s worth very little and needs expensive repairs. On top of that, they’re left having to make payments on the car loan. It’s a bad equation all around, and young people should do everything possible to avoid car loans and buy a pre-owned car for cash. Note also how your debt affects your credit score.


Rating of 5/5 based on 1 vote.

Caitlin Wood is the Editor-in-Chief at Loans Canada and specializes in personal finance. She is a graduate of Dawson College and Concordia University and has been working in the personal finance industry for over eight years. Caitlin has covered various subjects such as debt, credit, and loans. Her work has been published on Zoocasa, GoDaddy, and deBanked. She believes that education and knowledge are the two most important factors in the creation of healthy financial habits. She also believes that openly discussing money and credit, and the responsibilities that come with them can lead to better decisions and a greater sense of financial security.

Click on the star to rate it!

How useful was this post?

Research & Compare

Canada's Loan Comparison Platform

Largest Lender Network In Canada

Save time and money with Loans Canada. Research and compare lenders before you apply. Share your experiences with Canada's top lenders.

Save With Loans Canada

Special Offers

Red American Express® Card

Red American Express® Card
Ends April 30, 2023

Earn up to 12,000 bonus Scene+™ points in your first year (that’s up to $120 towards travel).

View Offer
Cashback & Bonus Offer

Cashback & Bonus Offer
Ends March 1st, 2023

New Offer! Get up to $2,000 cashback + a $50 bonus on signing up. Conditions apply.

View Offer
Earn 5% Cash Back With Neo

Earn 5% Cash Back With Neo
No annual fee!

Earn an average 5%¹ cash back at thousands of partners and at least 0.5%² cashback guaranteed.

View Offer
Best Personal Loan Provider by Greedy Rates
Icon

Confidential & risk-free

All consultations and conversations with Loans Canada and its partners are confidential and risk-free. Speak with a trusted specialist today and see how we can help you achieve your financial goals faster. Loans Canada and its partners will never ask you for an upfront fee, deposit or insurance payments on a loan. Loans Canada is not a mortgage broker and does not arrange mortgage loans or any other type of financial service.

When you apply for a Loans Canada service, our website simply refers your request to qualified third party providers who can assist you with your search. Loans Canada may receive compensation from the offers shown on its website.

Only provide your information to trusted sources and be aware of online phishing scams and the risks associated with them, including identity theft and financial loss. Nothing on this website constitutes professional and/or financial advice.

Your data is protected and your connection is encrypted.

Loans Canada Services Are 100% Free. Disclaimer

Build Credit For Just $10/Month

With KOHO's prepaid card you can build a better credit score for just $10/month.