There’s a common misconception that teens and young adults aren’t financially responsible. It’s an aged stereotype that definitely has some truth to it. When individuals are in high school and college, the majority of their expenses are covered by their parents. However, there comes a time when every adolescent needs to become financially independent. The best way parents can prepare their children for a stable future is by offering some sound financial advice. Here’s some things all adults should teach their kids about money.
Discuss the Importance of Car Insurance
When your young adult starts driving, it’s time to talk about the importance of car insurance. Adolescents should know that nearly all states require drivers to have at least some form of insurance. The minimum amounts and types of coverage vary by state. Parents need to ensure their kids understand that gas and maintenance aren’t the only expenses associated with driving. Furthermore, car insurance is typically higher for younger drivers due to their increased risk statistically. Drivers might be eligible for a Good Driver Discount depending on their driving record, car insurance provider, and years of experience behind the wheel.
Stress the Uncertainty of Official Programs
There will always be a level of uncertainty surrounding official programs designed to help people financially. Whether these programs are administered by the government or private companies, it’s important to teach your kids to never completely rely on forces outside of their control for financial security. The decline in pensions and increasing costs of social security are just two recent examples of how public and private programs intended to provide stability can end up collapsing or failing altogether. Parents need to advise their children to be wise with their financial planning and to never put all of their eggs into one basket.
Teach that Needs Always Come Before Wants …
When kids are young, there’s a tendency for every spare penny to go toward their wants since all of their needs are already covered by parents. This isn’t necessarily a bad impulse as long as it can be corrected when your child enters into young adulthood. As a parent, Making Sense of Cents suggests setting an example that stresses needs before wants in a financial sense. Instead of buying that brand-new phone or going on a vacation right when the paycheck arrives, your income needs to go toward rent, food, utilities, savings, bills, and other necessities.
Young adults need to understand that their wants should always take a back seat to these primary concerns. If you’re an entrepreneur, you can set the example by following some best business practices for starting and running a business, including being true to yourself and setting realistic budgets based on expenses and forecasted sales. Then share what lessons have been learned, including mistakes that have led to success later.
… But Do Teach Them Ways to Afford Wants
When we say that needs should always come first, that doesn’t necessarily mean there will never be opportunities to obtain wants. If your kid dreams of owning a house someday, let them know that it’s certainly possible — the key is to create a housing budget, start saving now, and look for loans and programs that will make the purchase more affordable.
Perhaps your child has shorter-term living goals. If your child is ready to move out of your home, you can help them find rental property like an apartment. If you’re not helping them financially, carefully work with them to figure out how much they can afford to spend each month on rent based on their current income. Keep in mind that depending on your child’s income, you may need to act as a guarantor on the lease.
Be Open About Your Financial Situation
Brighthouse Financial notes that many parents hold onto a misguided fear that sharing their financial situation with their children will yield negative consequences. While there’s certainly a time and place for this information to be shared, it shouldn’t be such a taboo and avoided altogether. Besides, many people learn better from real-world examples rather than worn-out platitudes and general advice. Even if you’re not comfortable disclosing your entire financial situation to your children, you could share certain aspects, such as your savings strategy, investment portfolio, retirement planning, or tax strategy. Any bit of real-world information will prove to be valuable to young adults learning to handle their money responsibly for the first time.
Teens and young adults are in a unique period of transition where financial responsibility will become an increasingly important component of their lives. As parents, you’re partially responsible for how your children handle these challenges of adulthood. Sharing practical advice and personal tips can ensure your kids have financially stable futures.