Financial Advice for Your Young Adult Children

Unfortunately, a large percentage of young adults in the United States are financially illiterate.   Studies have found that over a third have never taken a finance course and over a half feel unprepared to manage their own finances.  However, on the bright side, a 2018 study by Charles Schwab found that young adults are optimistic and have a strong interest in learning about personal finance.  Schwab also discovered that parents may be in the best position to educate their children about finances. They found that 69% of the respondents said their parents are good financial role models and 39% depend on their parents as their most trusted source for financial information.

Below are some financial tips to share with and help direct your children:

Create a Budget and Live Below Your Means – Create a budget to spend less than you earn to leave money to pay down debt, save and invest.  Your largest expenses will be housing, transportation and food.  Keep your housing expenses under one third of your budget by living with roommates or living in a smaller, less glamorous apartment.   Drive an older car and minimize spending money on eating out at restaurants.

Plan for the Unexpected – Create and maintain an emergency fund of 3 -6 months of expenses. Sign-up for health insurance and disability insurance to cover unexpected medical emergencies.

Avoid Credit Card Debt – Credit cards are convenient and can be a good tool to establish a credit rating. However, don’t purchase anything that will prevent you from paying your card off in full when the payment comes due at the end of the month.

Invest in a Retirement Account – If your employer offers a retirement plan, invest at least enough to get the employer match, if available.  Most young adults can maximize their retirement funds by investing in the Roth option.  If your employer doesn’t offer a retirement plan, contribute to a Roth IRA.  In a Roth account you invest with after tax dollars and you don’t pay taxes when the money is eventually used in retirement.  This is especially beneficial for young adults because your money can grow, tax free, for many years.

Pay Down Student Loan Debt – Identify all of your outstanding loans, evaluate your alternatives, start making payments and monitor your progress.  Research opportunities to refinance or consolidate high interest loans.  

You don’t need to choose between paying down student debt or investing, once you have created an emergency fund, do both.  Manage your expenses to leave enough money to start investing and meet your student loan payments.  

Educate Yourself on Personal Finances – Read articles and listen to webinars on personal finance to make better decisions. Consider reading the following books to help you better understand finances: “The Millionaire Next Door” by Thomas Stanley and William D. Danko, “The Money Book for the Young, Fabulous and Broke” by Suze Orman and “The Wealthy Barber” by David Chilton.