Life Lessons: Financial Conversations for New Graduates
October 12, 2022
Now that the caps and gowns are packed away, it’s time to have the basics of good finances talk with your newly graduated teen or twenty-something – the discussion that can help set them on the path to financial wellness for the rest of their lives. Just starting this conversation can be one of the best gifts you give them as they navigate a new world with new responsibilities.
The Approach
Let’s be honest – young adults typically don’t want to hear from their parents about managing their money. Did you at that age? Yet, this discussion needs to happen. You can’t assume your children will cobble together a degree of financial savvy from school, a job or social media.
If you want to help your messages stick, take a casual, supportive tone and don’t feel like you need to cover everything at once. This conversation can build over time as they progress through different stages of financial independence. And make this a “we” discussion not a “you” discussion. In these early adult years, you both share in responsibility of their financial future.
Basics to Cover
Whether you’re addressing an 18-year-old who’s gearing up for more years of school or a new college graduate who’s striking out on their own, there are some fundamentals they need to know as they embark on the next phase of their lives.
Creating a budget – If you only cover one thing in your first talk, make it budgeting. If you don’t have a budget, it’s much more difficult to plan and save. Budgeting is the cornerstone of financial wellness. Understanding what’s coming in, what’s going out and what puts you in a more proactive financial position. And technology can make the budgeting process easier for young adults – with plenty of apps available to help get started and track progress.
Fostering a savings mentality – The rule of thumb is to have the equivalent of at least six months of income in your savings account, but that can be a daunting figure for someone who’s fresh out of school. Advise your new graduate to start small, get into the habit of saving by aiming for one month of income in the bank – then build from there. The value of having that safety net can be immeasurable when emergencies and other unexpected expenses crop up.
Managing debt – Most U.S. households carry some form of debt – whether it’s a mortgage, student loan, credit card or another loan – so it’s critical to talk about managing that debt, from being realistic about what you can borrow to putting a plan in place to repay that money. How your new grad handles debt in their early adult years helps shape their credit score and can impact their ability to buy a home or borrow money to tackle some of life’s other milestones down the road.
Addressing risks – The value of insurance can be a tough sell to a young adult who can feel invincible and is often working with a limited budget. After all, something has to go wrong for insurance to kick in, and for young adults, those tough scenarios can feel improbable. Having insurance – and more importantly, having adequate insurance – is essential when you’re starting out. At that stage in your life, your greatest asset is your earning potential. The average person’s lifetime earning potential can be in the millions, and insurance can be a powerful tool to help protect that future.
Continuing the Conversation
Helping your new grad invest in their future financial wellbeing takes time and patience. Use everyday situations – such as receiving a credit card application in the mail – to continue to help them build their understanding of best practices and why they matter. After all, the financial decisions your young adult children make today can impact them for years to come, so help make sure they have the knowledge they need to make informed decisions.
This article is provided for general informational purposes only and is not intended to provide individualized advice..
Mark Thomas is a senior vice president with Aon Affinity. Contact him at mark.thomas@aon.com.