Personal Finance Essay Question

[questions]

I am currently finishing grade 12. I have currently been handed an in-class essay to which I have to sit for within a week. I would be grateful if you could help me with my enquiry. Any information that you are capable of gathering that can help me write a quality answer for this essay will be appreciated. My essay topic has been re-written below!

<i>Felicity Kendall is 17 and finishing year 12 in the near future. She has been working part-time for the last couple of years and knows that savings are important. She has managed to buy a cheap second-hand car and still have savings of around $2000. Her parents have always impressed upon her the importance of investing and looking after her future but they are very consercative and haven't done a great deal of investing outside of <a href="http://en.wikipedia.org/wiki/Superannuation_in_Australia">superannuation</a>. She has come to you to seek advice about how she should go about "setting herself up for the future"</i>

<b>Write a report to Felicity detailing everything you think she needs to know about Borrowing and Investing so that she can adequatly prepare for the future.</b>

Once again I would greatly appreciate it if you could pass some knowledge on and or refer me to other sources that may be able to help me with my assignment. Thanks again!

[tinapbeana]

hi questions, welcome to the site! i would recommend you research compound interest and check out the calculator at http://www.moneychimp.com/calculator...calculator.htm

if felicity puts her $2000 in an account drawing 5% interest compounded daily (365 times per year), her $2000 will become $24,360.82 in fifty years!

the calculator will also let you see what felicity's money will do if she continues to add some money every year. for instance, if she adds $10 per week, she'll have $140,652.99 in 50 years...

[PRICEPLUS]

Tina, I think you have something there!

[junger]

Questions -- either invest the money in a Roth IRA for a long term investment or put it into a high-yield online savings account for more liquid money.

[HalMd]

With respect to the borrowing part, Felicity should understand that a home mortgage is a good kind of borrowing because everyone needs a place to live, and houses generally increase in value over time. But a credit card is not a wise form of borrowing because credit card interest rates are high. If Felicity continues to save, and avoids running up credit card bills, she can eventually buy a house.

Regarding the investment part, as others have mentioned, interest compounds over time, so it is important to start investing early. Retirement accounts like a Roth IRA are good because the interest earned in these accounts is not taxed by the government until retirement. Investments can be automated, e.g., $50 per month, to avoid the risk of spending the money instead.

Google on any of these terms that you don't understand, or search here, or just ask.

[tinapbeana]

Originally Posted by HalMd

Regarding the investment part, as others have mentioned, interest compounds over time, so it is important to start investing early. Retirement accounts like a Roth IRA are good because the interest earned in these accounts is not taxed by the government until retirement. Investments can be automated, e.g., $50 per month, to avoid the risk of spending the money instead.

just know that a Roth IRA is a US thing. since the OP mention superannuazation (sp?), which is an Australian program, IRAs are likely not a viable option.

but compound interest is a universal language! as are the benefits of home ownership and education expenses vs 'empty' debt like credit cards.

perhpaps some research from the OP's country regarding how much more money a person with a higher degree of education can make. with more income comes more opportunity to save, and therefore take advantage of compounding interest. all of this could result from a little well-chosen education debt.