These are the things young adults need to know before they shuffle off to their respective dorm rooms and try to live on pizza and Cheerios for the next four years.
Maintain a Simple Budget
Budgeting has a tendency to get increasingly complicated as you get older and start accounting for mortgages and retirement savings and all that good stuff. For a recent high school graduate, however, the basics should suffice.
In its most basic form, a budget is just a plan for your income. Teach kids to think about how their purchases impact one another – how $20 here is $20 you won’t be able to spend there. Most importantly, they need to be able to see how their spending matches up with their earning (even if that "earning" comes from loans, grants, or allowances).
Separate Want from Need
One of the sharpest reality checks you receive when you become “independent” is the realization that your needs are no longer being taken care of by someone else. When you’re young it’s easy to spend money on wants, because you don’t really have to spend money on needs.
In that transition into full-on adulthood, a lot of young adults put themselves in a bad financial position because they continue to put their wants before their needs. If you can help your children understand the difference between the two before they leave home, they’ll be in a much better position to succeed.
Build Strong Credit
It may be tempting to simply teach your children to avoid credit altogether, but having no credit history is essentially the same as having a bad credit history. After all, creditors are looking for proof that you know how to use credit responsibly – not using it at all doesn't really show that.
Instead, young adults need to understand how credit works, how to use credit responsibly, and why it’s important to keep your credit accounts in good standing. Opening a joint account can be a helpful way to build that positive credit history, while also keeping an eye on your child's spending and credit usage (keeping in mind that these things should always be communicated openly).
Save Money for an Emergency
A lot of young adults think they already have an emergency savings account – they call it “Mom and Dad.”
As difficult as it is to get kids to prioritize their needs over their wants when it comes to managing their money, it’s even harder to get them to prioritize the needs they might have in the future, if something really bad happens. Unfortunately, as they say, “Mom and Dad won’t always be there to bail you out.” So make sure your children understand the importance of having money to fall back on and know how to build their own little emergency nest egg.
Take Nothing for Granted
There is no such thing as guaranteed income. A high school diploma. A bachelor’s degree. A master’s degree. No amount of hard work or good test scores is a guarantee that you’ll find the job you want or earn the money you think you deserve. That’s not to say graduates shouldn’t aim high – that’s simply to say that the path ahead is going to be a bit winding.
The more flexible and financially mindful young adults are, the easier it will be for them to adapt when they find themselves on an unexpected detour.
Ask for Help
When you’re young, some problems solve themselves. Sometimes you really can close your eyes and someone older will come along and fix whatever’s broken. It doesn’t work like that when you’re an adult, though. When you turn away from problems in the adult world, those problems only get worse and worse.
Unfortunately, young adults – caught between those two worlds – have a habit of closing their eyes when they really can’t afford to. Before it ever gets to that point make sure that your children know that all problems have solutions. Show them the potential pitfalls of being young and inexperienced, but also show them where to go when they inevitably end up falling into one of those traps.
You can’t teach your kids everything. You can’t prepare them for every possibility. But you can give them the basic tools and guidance they need to make smart choices and minimize the damage when their choices aren’t so smart.
