What Young People Just Can’t Seem To Understand (But Need to Learn ASAP)

My younger brother has more money than I do. Do you have any idea how hard that is to admit? My “baby” brother, at the ripe age of 18, who has barely worked a real job, while I’ve worked more than ten, has more money than I do. He has more money because early on, he “got it” and I didn’t. He was smarter with his money than I was, and so now, he has more than I do. What a humbling and terrible thing to accept as an older sibling.

Unfortunately for young people today, I’m not the only one making money mistakes early on. Here is what my brother understood earlier than I did, and the reason why he now has more money:

1. The Basics of Time Value of Money (TVM)

Unless you have a teacher willing to go above and beyond, schools today don’t effectively teach young people about the time value of money (TMV). The first time I formally learned it was at the age of 20 in my university finance class. That is already too late.

TVM is a financial principle that explains how your money today is worth more than the same amount in the future. It’s the idea that the $1 you have today is worth more than that same $1 in the future. This is because your money today has earning potential. It can be invested and can grow over time. Let’s say you have $100 today. If you invest that in an Exchange-Traded Fund (ETF) with an annual return of 5%, one year from now that $100 is now worth $105. However, if you didn’t invest that money, you would still only have $100. Thus, the money in your pocket today is worth more than in the future because it can grow into a larger sum over time.

2. Why Starting Early Matters

My Dad’s favourite saying is “time is money”. From a philosophical standpoint, he means that time is the most valuable resource, and that money isn’t valuable if you don’t have time (how cute!). From a practical standpoint, however, this saying has even more truth to it. Time is money, because you can have more money if you have more time. This is because of a beautiful thing called compounding.

When you invest your money, or even put it in a savings account that earns basic interest, you are earning money each year. Your interest earnings, however, aren’t just a fixed dollar amount that you earn each year, and that stays the same. You can reinvest this money and earn interest on the interest. Let’s say you earned $5 last year from that $100 you invested. At the end of the year, you reinvest that $5 at the same rate of 5%. Next year, you’ve earned not $5, but $5.25. So now you have $110.25 in total. If every year you do the same thing and reinvest the money you make, the interest you earn gets bigger and bigger and bigger.

They say youth is wasted on the young. Well, so is compounding. A young person who invests a small amount of money early on, and lets compounding do its magic, will have more money than someone who invests a larger sum later on for less time. My advice is to start as early as you can so you can take advantage of the time you have and benefit from compounding.

3. Understanding Opportunity Costs

In all honesty, I am a spender, and my brother is not; which is why he will probably retire decades before me. Every time I spend $7 on an overpriced latte, and he doesn’t, I have just spent more than $7. While I sip away my money, my brother would put that money into stocks. In 10 years when I’ve long forgotten what that caramel latte tasted like, his $7 (at a 5% annual interest rate) is now worth almost $11.50. Now imagine how much more money he has when I am buying lattes every day.

Simply put: the more money you spend today, the less money you have to grow. The money you spend today could have a much higher value in the future if, instead of being spent, it was invested. Time to get over my coffee addiction?

4. The Role of Inflation

Another thing that young people can’t seem to understand when it comes to money, is the role that inflation plays. Here is where my college roommate and I differ. She plays it safe and puts her money in a savings account. I invest. Her savings account earns interest each year but at a rate less than the rate of inflation. Yet no matter how many times I tell her she is just losing money; she refuses to listen to me. I just hope you’re listening.

Even if investing didn’t exist and you couldn’t grow your money over time, your $1 today is still worth less a year from now than it is today. This is because unlike your bestie, compounding, inflation is your enemy. There is a hidden cost of money in the declining purchasing power over time.

As things get more expensive year after year (even at a predictable rate if we are lucky), the same amount of money can’t buy as much. The eggs that were $3 a few years ago now cost $6. And trust me, as a broke college student, I can tell you inflation is REAL. Year after year, goods get more and more expensive. Investing helps to combat this increase in prices, but if you aren’t doing anything with your money, then each year you can buy less and less with it. Inflation means that your money can’t buy as much in the future as it can today.

5. Exponential Growth’s Non-Intuitive Nature

Our human (and especially teenage/young adult) brains struggle to understand the concept of exponential growth. We can look at a graph in math class and get the gist, but we find it difficult to truly understand the depth of what exponential growth means for our money. It’s like watching a raindrop fall into a puddle over time and expecting a small pond one day, when you’ll end up with an ocean.

Small, consistent investments snowball over time. When your investments grow, or you earn interest or dividends, you can reinvest that money and earn even more money the next year. It’s the same idea that if you double a penny every day for a month, after 30 days you would have $5,368,709.12. Read that number again. Slowly.

Oh, and to reinforce the time value of money one more time: if you only let the penny double for 27 days, you would have only $671,088.64. Why get just 1 medium-sized yacht for a penny, when you could have 10?

6. Practical Applications

Once you wrap your head around these concepts, they will stick with you for life, and you will be all the better for it. You need to first understand the why before you can apply the how. When you fully grasp the ideas of the time value of money, the importance of starting early, opportunity costs, hidden costs of inflation, and exponential growth, then you can learn to invest consistently, budget with investment goals in mind, and benefit from short-term sacrifices leading to long-term gains.

The difference between my brother and I is that when we made money, he always invested immediately while I did nothing. He had a sense of urgency. I did not. Now I am quite literally paying the consequences of my delays.

Learn from my mistakes. Don’t let your siblings outshine (or out earn) you.

Justine Hodson is a fourth-year Bachelor of Commerce student at UBC specializing in Sustainability and Social Impact. She has diverse work experiences, including serving as a strategy development consultant in Austria and as an Estate Operations Coordinator for a high-net-worth family. Justine also has extensive leadership experience, having founded a youth climate action club and managed large-scale events at UBC. Passionate about making a positive impact through business, she is driven by her entrepreneurial spirit and commitment to community-focused initiatives. As a former national-level pole vaulter and provincial-level swimmer, she brings discipline, creativity, and problem-solving skills to her projects. Justine is excited to make personal finance accessible and easy to understand at Canadian MoneySaver.