Teach Adult Kids About Money

Teaching children about money doesn’t stop when they grow up. This second of two articles looks at parents sharing their financial wisdom – sometimes hard-won – with recent graduates entering the work-force.

Get their paperwork organized. For most children, this time of life brings their first handling of paper such as bank statements, tax documents, pay stubs, health insurance claim forms, student loan bills and renters’ insurance forms. Suggest your child keep a binder or scan and e-store paperwork and records. Kids this age also start handling household bills they never saw in college, such as those for rent, electricity, water, cable and cellphones. Show them how you track your monthly expenses and payments and how you keep your records. Is your child paying bills through automatic debit or by check? Stress the ramifications of missed and late payments.

Keep a detailed budget. Have them track all expenses for the next few months. Record every outflow of cash and every credit card purchase in a spreadsheet. They should categorize each line item into needs or wants – and so learn what they can do without for a little longer. At the end of each month, discuss the record with them. They will find that detailed awareness helps them control spending. 

Knowledge is power. Though colleges offer courses in advanced econometrics, statistics and investment portfolio management, most children enter adulthood without ever taking a class on basic money handling. Make sure they have these skills. Share with them what you’ve learned about personal finance and guide them to resources such as online articles and blogs and books on personal finance for young adults.

Save early. Scrimping to put away money for a far-off retirement or an emergency fund may intimidate your child – especially if their first paycheck is small – but show them the power of compounding. If your child’s employer offers a 401(k) plan, urge them to put aside even a small amount each paycheck. Help them save for an emergency fund to cover needs for three to four months in case of job loss or other future problems; again, use online calculators to map out a fund plan. 

Living at Home. A recent Wall Street Journal article cited financial planners’ claims that an adult child back at home can cost $8,000 to $18,000 a year, often at the expense of parents’ household and retirement savings. Encourage your child to live independently if possible. Children living at home can also, depending on the parents, start to feel too comfortable.

Debt. Many young adults carry large credit card debt. Emphasize that a credit card is just borrowing at astronomical rates if they don’t pay the balance every month. With a new job and new life, many young adults also find themselves needing such new expenses as a car, furniture and a work wardrobe, to name a few. Talk to your kids about sensible spending and, again, about budgeting.

Graduate School. Many recent college graduates go to graduate school to delay entering the workforce. Ask your children why they want to go to graduate school and ask them to justify the reasons.

Learning from your mistakes. Share with your children the personal financial mistakes you made. Often people learn best from what happened to others.

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Tom Orecchio, CFA, CFP, ChFC, CLU, AIF, is a principal and wealth manager of Modera Wealth Management LLC in Westwood, N.J.

Nothing contained in this article should be construed as personalized investment, financial planning, legal, tax, accounting or other advice, and there is no guarantee that the views and opinions expressed herein will come to pass.  Investing involves gains and losses and may not be suitable for all investors.  Information presented herein is subject to change without notice and should not be construed as a solicitation to buy or sell any security or engage in any particular investment strategy.

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