Client login
Client login

What to Teach Your Adult Children About Money and Finances

Are your adult children financially savvy? How good are they at managing money? If your child would be clueless on how to do their taxes or find out their credit score, you owe it to them to help change that. Personal finance education is slowly being added to school curriculums - but that doesn’t really help your university student or recent grad. Your grown children are going to need some important financial skills that they’re not likely to learn anywhere else. 

If you supported your kids during college, they may be new to managing finances on their own. Even if they’re going to be living at home a little longer (that’s happening more than ever, according to Pew Research) instilling your 20-something with financial knowledge will help them down the road - and it helps your retirement savings plan too. 

7 Important Financial Planning Topics for Adult Children 

1. Create a Budget

Budgeting is one of the simplest and most effective tools for better money management. If you haven’t done so already, sit down with your child and make a monthly budget. Go over every bill and debt of theirs, compare it with income, and help them figure out exactly how much they need to stay afloat. 

A comprehensive budget should include all essentials like rent, utilities, groceries, gas, and phone - but also “entertainment” like going to movies or out to eat. Apps like Mint or Acorns can help automate the budgeting process. 

2.  Manage Debt Wisely

The early 20’s is a great time for your kid to start building some healthy credit. But they need to know how to handle it - credit card debt can ruin a person financially if they’re not careful. Encourage your young adult to pay their full balance each month to avoid high interest rates. Also, explain the connection between good credit and their ability to get approved - and get fair interest rates for - mortgage or car loans. 

If your kids have student loans to pay off coming out of college, make sure they have a plan for paying it back, and that they understand the consequences of defaulting on their loan.

3.  Set Financial Goals 

Whether career, fitness, or money-focused, setting goals can be extremely impactful. Goals motivate us, keep us focused and, more often than not, lead to higher levels of progress and achievement.

Help your child set short, medium and long-term goals for the money they’re earning. Short-term might be paying for all monthly expenses on their own. Medium might be saving for a new car or apartment, and long-term could involve buying a home or paying off all student loans by a certain date. 

4.  Set Boundaries 

Some parents struggle with saying no when their kids ask for money. Eventually, though, your offspring will need to become financially independent - as much for their own sake as for your retirement plans

If your kid is still living at home after high school or college, consider charging them rent or at least making them pitch in for some of the monthly expenses. Be clear about which bills they are responsible for, and give them added financial responsibility over time. For example, they can start by paying their own phone bill and add on from there. 

There’s another important boundary you should set - with yourself. Promise yourself not to dip into your retirement funds to help adult children financially. 

5.  Maximize Savings

Most 20 and 30-somethings are not yet concerned with retirement - but you can teach them how starting now will pay off in the long-term, thanks to compound interest. Help them set up an interest-earning savings account and encourage them to auto deposit a portion of each paycheck.

Just like retirees, young adults should have enough money in the bank to cover six months of expenses. That way if they get fired or laid off, they won’t have to immediately turn to you for financial help. 

And if they’re entering or already immersed in the work world, make sure your child knows how to maximize their employee benefits. If the employer matches employee contributions to a 401(k) or similar retirement plan, make sure they take advantage of it. Some employers may also cover things like gym memberships, continuing education, and, with more people working remotely, internet service.

6.  Understand Taxes

Nobody likes taxes, which is why most of us avoid thinking about them. Sadly, many people don’t truly understand taxes until much later in life - and this lack of financial education can be costly. 

Your grown children should know how to fill out a W2 and what the different types of withholding mean. They also need to understand deductions, Social Security, and the importance of keeping records. If they’re a freelancer or contractor (a rapidly growing slice of the workforce) teach them how quarterly estimated payments, self-employment tax, and 1099’s work. 

7.  Introduce Investing

Once your child has the basics down, you can begin imparting the value of long-term investing. Help them open a low-risk index fund and teach them that a long-term plan - not day-trading or trying to “beat the market” - is the safest bet for growing their wealth over time. With this knowledge, it’ll be easier to cut the noise and avoid letting fear or pundits dictate their investment moves. 

Finally, it’ll benefit your child to understand the different types of financial advisors they’ll meet along their investment and financial planning journey. Different fee structures can have a big impact on your overall retirement portfolio - as well as on the recommendations you may receive. Choosing a fiduciary financial advisor ensures your child will receive advice that’s in their best interest - not the advisor’s. 

Financial Literacy - Lead by Example

Educating your kids about personal finance is a lifelong process, and it begins sooner than you think. Research suggests kids begin picking up money concepts at a very young age - thus, one of the best things you can do is lead by example. A financial plan provides a foundation for your retirement decisions and helps you keep your objectives at the forefront, no matter what comes your way.

Remember, a solid retirement plan is more than just an investment portfolio. It includes making preparations for Social Security, health care, and tax management in retirement. Also important, but often overlooked, it includes your goals (both financial and lifestyle) for retirement. If you don’t already have a financial plan in place, you can work with an advisor to help you create one. 

Does your financial plan need a check-up? Our Essential Retirement Guide helps you identify gaps and cover all your bases - download yours now!

New call-to-action

Ready to take the next step?

Let’s talk!

Explore what’s possible for you during your retirement

How to Qualify and Apply for Colorado’s Property Tax Exemptions for Seniors

If you’re a senior aged 65 or older living in Colorado, you may qualify for property tax exemptions to help lower your tax bill.

September 21, 2023

Let’s Celebrate National 401(k) Day September 8, 2023 - How to Get More From Your 401(k)

Do we actually need a National 401(k) Day? Actually, it might be more necessary than you think.

September 7, 2023

New Tax Law Lets You Move 529 Funds to Roth IRA: How Retirees Benefit

Starting in 2024, there will be a major change to 529 plans that allow for a new transfer option to Roth IRAs. The new provision is part of the SECURE...

August 24, 2023