Graduating college is a major milestone in one’s life – not only for the child, but also for the parents who have supported them throughout their academic journey. However, as this door closes, another one opens: adulthood. As a parent, you can play a major role in setting your child up for financial success as they start this new chapter in their lives. This doesn’t mean you have to micromanage their spending or pay for every bill, but you can offer guidance and help them develop confidence and skills to manage their own financial life. Below are three easy, powerful ways parents can support their graduate’s financial future.
Without a doubt, one of the most important things a parent can do is initiate honest, open conversations about money with their child. For most recent college graduates entering the workforce, there tends to be a lack of understanding of basic financial literacy. This includes budgeting, building a credit score, managing student loans, and creating and contributing to investment accounts. Rather than assuming that they can just figure it out as they go, by providing advice and knowledge, you gift them the opportunity to get a head start on their financial goals.
Ask them what they feel they need help with and how they plan to manage their income and expenses. You may want to walk through with them how a budget works and the difference between their fixed costs (e.g. rent, utilities, loan payments) and variable costs, making sure their budget is realistic. You can also explain the importance of paying off debt and the impact if you don’t.
For many families, some level of post-college financial support can be expected. This could be not charging rent as your child looks for an apartment and lives at home, keeping them on your insurance plan, or even helping them pay for groceries. This support can be very helpful in easing stress and helping your child transition to full independence. However, it’s important to create clear boundaries and a realistic timeline for this support.
This support should be set up in a manner that encourages responsibility, not dependence. If you plan on providing some sort of financial support, both you and your child should understand how long the support will last, what it’s intended to cover, and any sort of stipulation for continued support. You can even think about decreasing your financial assistance over time, slowly moving them to full independence. This transition can be a great way for your child to learn and gain confidence in a comfortable way.
It's important to note that this approach is not about being strict – it’s about setting your child up for a smooth transition to financial independence and sending an important message that you are there to support them.
Having just graduated from college, the last thing young adults are thinking about is savings and retirement. While that’s understandable, one of the best things a parent can do is to encourage long-term thinking. That means introducing the idea that financial success isn’t solely based on how much one earns but also based on how much one spends and saves. It’s about building strong habits now, so there is far less financial stress in the future.
Talk with them about building an emergency fund, even if they can only contribute $20 a month. Explain its importance and the role it can play on a rainy day. If they’re already employed, review their company’s retirement plans and explain to them how they can take advantage of free employer contributions, if offered. If they’re not employed yet, think about looking into Roth IRA options. One of the most impactful ideas is the concept of compounding. By showing the impact on one’s retirement and savings accounts, it’s easy to illustrate how important investing early in one’s life can be.
It's important to understand that you don’t have to be an expert on these subjects. All you need to do is point your child in the right direction to trustworthy sources. However, at the same time, feel free to share your own experiences and perhaps what you wish you’d done differently. Your stories can carry more weight than you realize and illustrate to your child that you’ve been in their position before. It can show that managing money is a lifelong journey and not something that is mastered overnight.
Disclosure:
Apella Capital, LLC (“Apella”), DBA Apella Wealth is an investment advisory firm registered with the Securities and Exchange Commission. The firm only transacts business in states where it is properly registered or excluded or exempt from registration requirements. Registration of an investment adviser does not imply any specific level of skill or training and does not constitute an endorsement of the firm by the Commission. A copy of Apella’s current written disclosure brochure filed with the SEC which discusses among other things, Apella’s business practices, services and fees, is available through the SEC's website at: www.adviserinfo.sec.gov. No current or prospective client should assume any discussion or information contained in this material serves as the receipt of, or as a substitute for, personalized investment advice.