It's parents' job to set children on right financial path
Older adults have the experience that can be passed on to their children, even if financial support cannot. So moms and dads should move beyond the birds and the bees and sit their kids down and talk about the spending and the saving.
Young people starting out on their own or in a new job face many challenges in establishing not only their career but their finances. And those still trying to get a foot in the door also face challenges of survival in a tough job environment. With the world against them, the most support and encouragement they can receive now is from their parents.
Older adults have the experience that can be passed on to their children, even if financial support cannot. So moms and dads should move beyond the birds and the bees and sit their kids down and talk about the spending and the saving. This way, when the time comes for a child to grow into independence, that child has established a set of financial morals.
The first and arguably most important lesson for young adults: how to keep a budget. I'm pretty sure most young adults, myself included, started out excited about spending money, not saving it. Parents can pass on these lessons along with the danger of overspending and not saving enough while young. Also stress the importance of keeping to the budget and paying the bills on time to keep a clean credit history for when the time comes to get a loan.
In line with budgeting is setting up a system to track all the paperwork with accounts. A simple file system is often enough for young adults.
Young adults often don't know the implications of income taxes. Sharing a parent's tax return and the complications involved help a child understand all the points to keep in mind when making decisions and the impact taxes have on those decisions. This is where an explanation of the power of 401(k)s and IRAs will show a young adult to save on taxes.
A critical point to teach before it becomes a hard lesson is managing credit cards and avoiding debt. A child may want to start a debit card with a parent who can control the limits and monitor the child's management of debt. However, a parent needs to be proactive to prevent any mismanagement by the child that would damage the parent's credit. Along with managing credit, emphasize the importance of protecting information to prevent identity theft.
Finally, help a child understand the need to have adequate insurance protection. Often young adults take out only the minimum coverage, which is often not enough to cover a serious accident or to protect against lawsuits resulting from accidents. If a parent is able to help financially in one area, helping a child pay for insurance or including him or her on the parent's policy can help the child receive a lower rate.
Parents can be a valuable resource in troubled times and set a child on a course for strong financial habits.
Dan Serra is a financial planner with Strategic Financial Planning Inc. in Plano, Texas. E-mail him at serrafinance@yahoo.com or visit his Twitter page at www.twitter.com/danserra.
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