Best gift for grads: road map to financial success

This spring, nearly two million graduating college students will enter the U.S. workforce. With most having just spent years immersed in computer engineering, business and political science courses, very few have earned even a single credit toward what will likely be the most immediate and toughest test for them: managing their personal finances.

We need to provide them with the tools and solutions they need to financially empower themselves for a lifetime. That work should begin right away — retiring student debt on a schedule, building a strong credit score and immediately starting a savings plan.

Some new graduates think saving for retirement is something that can be put off until later down the road. Doing so comes at a very high cost for their future selves.

Albert Einstein declared compound interest the most powerful force in the universe. Waiting even one year to start saving in young adulthood can set a retirement nest egg back by thousands of future dollars, requiring painful or impossible catch-up later in life.

Suppose a 25-year-old begins setting aside $5,000 a year for retirement. With a 7 percent annual return, he will have $1 million for retirement by age 65. However, if he waits until age 45 to start saving, he’ll need to invest $25,000 a year to get that same $1 million.

Grads need to structure a budget that allows them to meet their debt and cost of-living obligations, while setting aside money for retirement beginning on day one of their career. If the budget allows, they should contribute to a 401(k) with at least what their employer matches, if not max out their contribution.

Bank of America is partnering with the innovative online education expert Sal Khan and Khan Academy to deliver BetterMoneyHabits.com. This interactive website offers free financial education. It simplifies intimidating topics and applies the information to common financial challenges across the spectrum, like making a realistic budget, getting a car or home loan and starting retirement savings.

Let’s work together to promote financial literacy starting with our young people. With the right tools, their financial futures can be bright.