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Parents: Tips to Prepare Your Grad for the Financial “Real World”
By: Dave Geibel, Senior Vice President and Managing Director, Univest Wealth Management
It’s graduation season which means that many young adults are getting ready to enter the “real world.” This is an exciting time, however, recently it’s become apparent that this younger generation can be unrealistic about how much lifereally costs. While many of us were forced to jump in and figure it out, there has been a cultural shift and we are seeing many of today’s parents continue to take care of their children financially even as they enter adulthood.
While none of us wants to watch our children suffer, prolonged financial support is NOT helping them in the long run. These young adults are at risk of never learning personal finance basics which can haunt them the rest of their lives. Since personal finance isn’t widely taught in school, it is imperative parents instill this knowledge in their children to help them develop the skills necessary to handle their own money.
Here are some things you can do as a parent to help ensure your graduate is ready to tackle the financial reality of being an adult.
Teach the basics of budgeting. Encourage your children to not just spend within their means, but to actually analyze where they are spending their hard-earned money. Creating a list of all expenses can illustrate where overspending happens and how their budget can be tightened. For example, if your child spends $5 on a coffee every day, that adds up to $150 a month! That money could be used for a monthly car payment or put into savings. Closely examining where money is going and deciphering needs versus wants can increase financial acuity.
Encourage older children to take ownership of their financial lives. Stop allowing them to rely on you for financial security. If an adult child is living in your home, charge rent and expenses to teach that everything has a cost. You can do this gradually. Start by making a list of all items for which you have been financially responsible for (food, clothes, health care, vacations, toiletries, utilities, etc.) and put a schedule together to create a plan for transitioning the financial responsibility for these items to the young adult.
Stress the importance of saving for the future now. Retirement may seem like it is an eternity away, but the earlier your kids start saving, the more time their money has to grow. They could be well-prepared for retirement if they form a habit early in their career to set aside 10% of their earnings. In addition, stress the importance of having an emergency fund available that can cover three to six months of living expenses. Making a habit of saving now could serve them well down the road.
Of course, children don’t always listen to their parents. Involving a third party such as a financial advisor can be a good step to bridge the gap, institute a habit of saving and introduce them to investing. If guidance from a trusted advisor could be helpful in determining the best approach to financial planning for your kids or yourself, please feel free to contact us at888-578-0770 to get a conversation started about working with our team of advisors to create a customized solution.
Investments offered by Girard Partners, a Univest Wealth Management Firm, are not FDIC insured, are not a deposit of or bank guaranteed, and are subject to risks, including loss of principal amount invested.
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