How to talk to your young adult about money
When you child finally becomes an adult, it can be quite a hard adjustment as a parent.
You don’t know where you supposed to step in to help them and give them advice, and when you are supposed to let them figure things out on their own.
For the most part, they need to learn from their own mistakes, but one area where they will definitely need your advice is finance.
When they first start earning their own income, they’ll be ecstatic. They’ll feel like they finally have money of their own.
And then, of course, they have to pay all of their bills and they’ll realise that their bank account is much emptier than they thought it would be. This is where your advice could help. Here are some points you should discuss with them when it comes to money.
Budgeting
The most important lesson that your not-to-little one is going to have to learn is how to budget. And, since you’ve likely been budgeting for quite a while, you’re the best person to teach them how to do it. Start by explaining to them exactly why a budget is important. If they do not know why they are doing it, then they might not take it seriously. Let them know all the benefits of having a budget, for example, knowing exactly where their money is going each month and making it to month’s end without having to, well, borrow money from you.
If you are comfortable sharing your financial information with your young adult child, then you should consider showing them the budget that you work off of every month. Although, it is likely that your budget will be different from theirs as you probably have more expenses. Make sure not to confuse them and keep it basic by actually showing them how to create a simple budgeting template. They might not accept it, but you might want to offer to see their budget once they’ve put it together. However, take a step back after this when it comes to how they spend their money as you’ve shown them how to budget but you can’t force them to actually do it.
Avoiding debt at all costs
Soon after they start to earn their own money or receive their first increase, they might start to think about getting a credit card “just in case of emergencies”. You should do your best to advise them against this. While credit cards are part of many people’s lives and they are not necessarily a bad thing to have, they can be problematic for young people who are still learning to properly manage their money.
Explain how easy it can be to fall into the debt trap. At their age, they are likely not earning enough to do absolutely everything they would like to do or purchase all the items they convince themselves that they need. So, when it comes to the end of the month and their friend asks if they’d like to do something which costs more money than is in their bank account at that moment, they might say “just this once” and take out their credit card. And after they start using their credit card for non-essential purchases, it becomes easier and easier to take out the plastic when their bank balance is low. Soon, they could end up in credit card debt, which might amount to far more than they earn. And if they are unable to make their credit card repayments, they might take out a loan that they can pay off over a longer period. Eventually, as they get into more and more debt, they could so easily end up in debt counselling.
It’s important that you explain just how easily this could all happen and that it happens to so many young people, no matter how much they earn. Emphasise that they should always do whatever it takes to live within their means.
The importance of saving and what they should be saving for
It’s probably the case that, until now, they’ve only ever had to save for luxuries they’ve wanted. They’ve probably never had to save for a serious goal and purpose that doesn’t end with them going on holiday or purchasing the latest tech device. Now is the time to inform them that they need to save for two very serious reasons: retirement and in case of an emergency.
They need to understand that if something happens and they need a large amount of money in a short period of time, they’re going to need an emergency fund. Whether their car needs serious repairs and new parts or they lose their job and need to cover their expenses until they find a new job, an emergency could come up at any time.
They probably think they’re too young to be saving for retirement, but that is certainly not the case. The sooner they start saving, the better life they’ll have when they retire. Even if they only start with a small amount at first, it will get them into the habit of saving for their future.