Why Most Twentysomethings Don’t Understand Personal Finance

Planning a wedding? Worried about how to pay off your student loans? Debating if you want to buy or rent an apartment next year after graduation? These are all decisions that can be made if one has a command of his or her personal finances and financial goals, both in the short-term and long-term.

As a personal finance junkie, I am often asked how I developed my knowledge on personal finance when I never had formal training during all my years of being schooled or even while I was working at Goldman Sachs. My knowledge of personal finance was built by various encounters with really smart financial experts I met after I graduated from college and was about to enter the “real world.” Because there were very few fun resources out there to teach me this stuff, I found learning the information to be very boring but nevertheless extremely useful to how I planned to live my one wild and precious life.

When I found out one of our classmates, Alexa von Tobel, decided to take a leave of absence from HBS to pursue her dream of launching a website to make personal finance fun and exciting, I was thrilled for future generations of smart twentysomethings to have the ability to finally develop a mastery over their finances.

Right before Alexa graduated from Harvard College in 2006, she was sitting around a table with a group of friends, discussing how ridiculous it was she had never had a single class on personal finance. Ironically, Alexa was going to work as a trader at a hedge fund and had just deferred Harvard Business School for two years. Similar to me, Alexa realized the dearth of her personal finance knowledge was extremely apparent. After scouring various resources, she kept finding herself dissatisfied with what was readily available. She found that most personal finance education tools rarely began with the basics and that none spoke directly to her.

As a result, she decided to launch the website to help smart and accomplished twentysomethings have mastery over their finances. The name of the website is derived from a combination of three words: Learn, Earn, and Invest. In September of 2009, LearnVest closed on $1.1 million in venture and angel funding and was subsequently selected as a TechCrunch 50 Company for 2009. The website has been in beta phase for the past few months and officially launches today with 15 employees headquartered in New York City. I find it to be an invaluable resource for MBA students and young professionals, and I wish something like this existed when I first entered the workforce. Below, Alexa shares with me her thoughts on how to improve personal finance education in America and how smart MBA twentysomethings can enjoy learning about personal finance.

SAINI: Why is it that smart twenty-somethings, including many MBAs, don’t understand their finances?

von Tobel: Personal finance education is not taught in the majority of high schools, colleges, or graduate schools across the United States. While we often learn about things like macro- and microeconomics, we are left to “figure out” the topic that’s arguably the most important-the one that affects every single day of our lives.

SAINI: How should MBA students get a hold of their finances, and how does your website facilitate this?

von Tobel: LearnVest enables you to gain insight into your personal finances via an easy-to-navigate and easy-to-understand web-based resource.ÿWe begin by asking you a series of questions so that we can better comprehend your current financial needs.ÿFor example, are you in graduate school?ÿStarting a new job? Engaged? Planning to move soon?ÿ Want to tackle your debt?ÿ

Once we know these details, we customizean action plan specific to your goals, offering you a personalized experience. The LearnVest Action Plan includes both articles and specific financial tools-allowing you to educate yourself, become fiscally organized, and act in your financial best interest.

Next, we keep you current via the LearnVest Daily. The LearnVest Daily is our newsletter that gives you budgeting tips, finds you extremely affordable (but great) gifts for the holidays, preps you for tax season, or breaks-down relevant financial news. Moreover, the newsletter is free, more topical than a book, and delivered daily to your email inbox.
SAINI: Your website and daily newsletter provide topics ranging from long-term investments to how to manage your monthly paycheck to more fun things like, how to find great butÿaffordable gifts for the winter holiday season. For HBS MBA students, what do you see as the top three money lessons they need to master?

von Tobel: The basic money principles that MBA students need to master are the exact same principles that everyone needs to master. It’s not the cup of coffee that you need to cut out of your daily expenditures so much as it is understanding and implementing the correct financial habits that will help you to maintain your own fiscal health:

1.) Understand the massive impact of saving in your 20s. Compounding interest can seem like magic, though it’s really just math.

2.) Check, build and maintain your credit history. Pay every single bill on time by keeping your due dates on an electronic calendar.ÿ

3.) Live below your means! In practice, this requires some serious discipline and determination.

SAINI: Regardless of one’s current financial status, what should every MBA student or young professional do right now to make steps to improve their financial future, even if they don’t have a vision of what that future might be?

von Tobel:
1.) Keep a short-term savings account. Some call this an emergency fund, and I think we all are aware that in this economic environment, lay-offs abound! My favorite LearnVest tip to help facilitate this savings process: Automate it!ÿSet up the direct deposit of your paycheckÿso that a small portion of it is automatically transferred into your savings account the day your paycheck is deposited. Out of sight, out of mind, and you will be that much better off when the economic rainy day comes along!

2.) Get in the habit of maxing out your Roth IRA, 401(k), or 403(b) retirement savings accounts every single year. ÿWe recommend contributing yearly on January 1st to ensure that you receive the benefit of the full year of compounding interest.

3.) Check your credit score for free at You should strive to keep this number above 760.

4.) Sign up for the LearnVest Daily and receive important, free information that will help you to stay on top of your personal finances. It is much more convenient than tackling an entire personal finance book. Plus it comes straight from experts and can be read in less than two minutes each morning!

SAINI: I am constantly victim to non-budgeted expenditures and splurges (think clothes and shoes)! If someone lives his or her life on a “budget,” does that mean he or she has to give up the luxuries and indulgences in life?
von Tobel: Not necessarily. A budget is a simplified tool to help you organize both what you save and what you spend. If you structure your finances with both short-term and long-term goals in mind, you will put yourself in a fantastic position to enjoy your money the way you prefer without ever being over-extended. At LearnVest, we stress that you should not be overly frugal or generally terrified to spend money. If you arm yourself with solid financial knowledge and are fully aware of your own personal balance sheet, you essentially empower yourself to be able to splurge appropriately when the time is right!
SAINI: Clearly, you have an amazing and informative website that is poised to grow. I’m curious though; if you had to recommend other financial sources to the average MBA student, what would those be?

von Tobel: There are many solid resources available to help you handle various aspects of your finances (e.g., online bill payment or data aggregation tools). ÿHowever, we consistently came up emptyhanded when searching for an engaging, one-stop resource to help walk you through financial decisions like: How exactly do I check and think about my credit score? Secure a mortgage? Create a budget on my new salary? Combine finances when I get married? Deal with student loans after graduation?

We currently cover 50 of the most important personal financial life events and help walk our users through them, step-by-step, with expert advice via the well-designed LearnVest Checklist.

SAINI: Please share with us a financial tip/strategy that you recognize is beneficial, but you are still struggling to incorporate into your life. And how do you plan to incorporate it?ÿ ÿ
von Tobel: I’ve never missed a payment on anything (I actually pay everything off early!), I am great about sticking to my personal and professional budgets, and feel very confident about my current retirement plan-but this year’s challenge is to learn the detailed nuances and implications of federal and state taxes before I file in April 2010.ÿSo if you want an easy way to get a hold of your personal finances in a fun, easy-to-use, yet instructive manner, check out
Your HBS Money Honey,
Mia Saini

Mia Saini is a born and raised California girl. She is earning her MBA at HBS. She graduated from MIT and went straight to the sales floor at Goldman Sachs. She honed her journalism skills at CNN, WB, CNBC, and as a TV reporter at Jim Cramer’s She is the Founder of HBS TV and is a video host for MBA PodTV on Each week she writes a “Money with Mia” column about money, business and personal finance, so email HBS’s Money Honey your questions, story ideas and feedback.

November 9, 2009
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