Financial mistakes made early in life can dramatically change the face of a person’s life. If young adults aren’t properly equipped to handle their finances, the likelihood of significant financial error increases.
As young adults begin to grow into themselves, they set the rhythm and tone for the rest of their lives. Will they be responsible? Will they take healthy risks? Can they make wise financial decisions? These are all questions parents can help answer before their young adult leaves the nest.
Most of the financial mistakes that are made immediately after high school come not from recklessness, but from ignorance. They don’t know how to handle money right because no one taught them how.
Here are three things young adults need to know about money before leaving home:
Teach them to save differently
People all over the world have the wrong idea about saving money. They conflate it with limiting lifestyles, unpopularity, and boring predictability. While it’s true that spending requires self-discipline and regulation, it’s only boring and unpopular insofar as we make it.
One of the first things we should teach our young adults is to think about saving money differently. Teach them that their savings accounts are not predetermined and unchangeably focused on boring things like taxes and car repair. Associate savings with prosperity, spontaneity, and flexibility.
You know them better than anyone. Use their personality to suggest potential savings funds. Perhaps they want to see the world after high school. Suggest a Paris or South American savings fund. Maybe they do like cars, and car repair isn’t for oil changes and realignment, it’s for new rims, a new wrap, and new leather seats.
Set the savings tone for your young adults before they leave the nest. It’ll make all the difference.
Teach them to spend money differently
Similarly, or perhaps even more noxiously, spending is associated with restriction and suffocation. Most parents teach their children how to budget, not how to spend. Yes, there’s a difference.
Budgets tell them that they can only spend this much on eating out with friends each month, or only this much on clothes, or only $25 on gas. Its language is restrictive; borderline punitive. It’s little wonder so many people are turned off by the word budget.
Reframe “budgeting” as a liberating “spending-plan” and not a suffocating ball and chain. Encourage controlled, intentional spending. Emphasize the “spending” part, and not the “budget” part.
Help them set spending targets. “I want to spend this much on food,” “I want to spend this much on gas.” Give them the freedom to choose what they want to spend their money on.
Tell them you expect them to spend. Tell them they have to spend! Life cannot be lived white-knuckle gripping every penny we own. It requires the constant, targeted flow of cash. Spending is not something to be avoided, merely intentionally controlled.
Teach them to invest differently
No one can save their way to wealth. You’ll find that even if you saved 20% of your income annually, in 10 years you’d still be living like you were before. If your young adult has financial aspirations above those of us mere mortals, the best gift you can give them is a knowledge of how to invest.
Before they leave the nest, set up an Acorns investment account with them and work to continually refill it. This can even be one of their “savings funds”.
Acorns has a life-changing feature called roundups. Turn it on, and Acorns will automatically round your daily purchases up to the nearest dollar and invest the difference. The perfect way to spend and save differently! Set their account up today!
Teach them that it’s very probable that, in order to be financially independent, they’ll eventually need to invest in passive income streams like real estate, a small business, and company stocks. Set their sights on more dollar signs. Give them an exciting financial goal and help them get there with investing. Get them investing today!