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Why You should NOT Save any of your Student Loan! {Not Even 1p}


Woah, now before the controversial title gets you, let me explain. Now I study Economics and Finance at the University of York (trying to gain some credibility) and one of my friends at home recently started saving for a house at the mere age of 18.

Yes indeed you may believe this to be a great thing and I totally agree! However the reason I am not doing so myself and am 100% not considering it, even though i know it seems good, is because of how inefficient it is! Now for the purpose of this article i am going to assume inflation of 0%, the real value of money stays constant/ the price level in the economy never changes.

So consider this, at age 18 through to 30, your probably just starting out in your career, your wage is not going to be at is peak. With age comes wealth due to moving higher up the career ladder lets assume. Lets say somebody earns around £25,000 a year on average between 18-30 and for the explicit purpose of this article that from the age of 30-42 they earn £50,000 per year.

Considering this if you was to save 50% of your income for a house while you are young, between 18-30, you end up with £150,000 while literally losing 50% of the utility you could of had by spending your savings. Compare this to saving later on in your life. Between the age of 30-42 if you saved 50% of your income (stated above) you end up with £300,000 while losing 50% of your utility. Now although the loss of utility is the same, you've actually ended up with £150,000 more by saving later in life!

Via this example, my point can evidently be seen. Its simply better to save money when you earn more as its more rewarding financial and your loss of utility is the same. Its also pointless to save money as a student because the money you save would not be enough to buy anything in the future (like a house), that you couldn't save for a lot easier when you have a full time job. Therefore saving while your young means you lose 50% of your utility (being happiness or something similar) for no real reason. Inflation only exemplifies this problem!

Coming back to my friend, I would definitely suggest to him that he waits till he's fully qualified and bringing home the big bucks as it will be a far for efficient system for obtaining happiness and wealth!

Let me know what you all think about this (just a quick thought that i had and wanted to share)

Best,

Dylan x