This is our final blog in a series about setting up the next generation for financial success. In this piece we summarize and conclude with these 5 tips.
1. If they don’t have a written budget, encourage them to create one and stick to it. If they need to cut back on expenses, they can start by eliminating the extra “nice-to-haves” in their life.
2. Explain the importance of building an emergency fund to cover a minimum of three months of essential expenses and advise them to keep this money easily accessible, such as in a savings account. Depending on their job security and their assets, they may want to have up to 12 months of basic expenses in reserve.
3. Teach them to stay on top of credit card debt and to pay off their balance every month, if possible. If they’re carrying a balance, tell them to think about ways to reduce their interest rate. For example, can they transfer the balance to a card with a lower rate?
4. It’s never too early to start saving for retirement. If they have a company-sponsored 401(k) or other retirement plan available, advise them to contribute at least up to the amount that will allow them to take full advantage of any employer match. They should not leave this “free” money on the table. Ideally, if they can start putting aside 10% of their yearly salary in their 20s and keep saving at this rate throughout their working life, they should be in great shape when they reach retirement age. Remember, it’s not only how much they have to invest but also how long they have to invest that counts. Right now, they have time on their side.
5. Remind them to always protect themselves—and their finances—with adequate health insurance. Being young and healthy is no guarantee against an accident or unexpected illness.
As we have discussed, parents and grandparents play an important role in influencing the financial behaviors of their children. This young adult stage of their life is an important time to establish good financial habits to set the groundwork for years to come.