Emphasize the importance of saving
At this point in your children's financial lives, your guidance may be seen more as interfering than helpful. But drawing on your own experiences, you can point out how long it takes to save a down payment for a first home or to start a business. If marriage is on the horizon, that only increases the stakes. Young adults should work toward setting aside at least 10% of their income for long-term financial goals. With careful planning and budgeting, they'll build a solid financial base and good habits for a lifetime.
Urge them to set up an emergency fund
Here, too, sharing what you've been through may be crucial and help illustrate your point. You can talk with your kids about the kinds of unexpected costs that have arisen in your life and remind them how, in today's uncertain economy, job losses are all too common. Give suggestions about how to build up a rainy-day fund that can cover at least six months of living expenses.
Remind your kids that retirement will
arrive sooner than they expect
Remember how you felt in your twenties when you had a chance to join your company's 401(k) plan? Your kids, too, probably think of retirement as an inconceivably distant event. But you can point out the advantages of starting early and increasing contributions as paychecks grow. Encourage your children to take advantage of any company match available through an employer-sponsored retirement plan and to let the power of compounding help the savings within 401(k) plans potentially grow at an accelerated rate. Remind them that their biggest asset may be youth itself. Good habits they form now could benefit them throughout their lives.
Share what you've learned about investing
Lessons that are old hat to you likely come as revelations to new investors. Matching risk levels to their goals, diversifying their assets and avoiding investments that sound too good to be true are all important steps on the road to a lifetime of insightful investing. Urge your kids to do their research, to never stop learning and to take action today.
3 Questions to Ask Your Advisor
- What basic budgeting tools might my children use to gain financial skills?
- Which types of savings accounts are available that can help my children reach their financial goals?
- How do I help my older children build credit and what are their options for opening their own accounts?