Parents invest considerable time, energy, and money preparing their children for a successful life. Think piano lessons, academic tutoring, specialized athletic opportunities, travel abroad, classes designed to maximize SAT scores, and even mundane things like…braces. To be sure, we love our kids!
Yet, some parents forget to prepare them to succeed financially. Here are five important things to teach your 18 year-old children:
1. Credit is to be taken seriously and used wisely. Getting into debt is generally considered the #1 mistake made by young adults. Teach them that credit should be used as a convenience…not a substitute for limited funds. Remind them that your standard of living does not automatically transfer to them.
2. Control your expenses rather than allowing them to control you. Stress that ‘budget’ is not a dirty word, and that they should budget in some fashion. Either Quicken or manual methods will suffice as both enhance financial awareness.
3. Start preparing for retirement early! When it comes to saving for retirement, the concepts of “too much” and “too early” don’t apply. Your kids should participate in their employers’ 401(k) at least to the extent of an available matching employer contribution. Encourage them to schedule annual savings increases and to divert a portion of their bonuses.
4. Learn about financial planning. Young adults need to be mindful of all five major planning areas: 1) investment management; 2) estate planning; 3) taxes; 4) retirement planning; and 5) risk management (insurance). If you have a financial advisor, ask him or her to help you educate your kids about these five important areas.
5. Life is uncertain. Teach them the value of taking precautions. Young adults need to be extremely mindful of health care coverage, not allowing even one without full coverage. They also need to carefully consider having rainy day fund and disability coverage.
You’re not helping your children when you shield them from the work and sacrifice associated with financial responsibility.
Give the gifts peace of mind and common sense! Teach your kids about money.