Ask Carrie: Helping a recent grad—how much financial support should you give?
My 22-year-old son graduated from college this spring. Now he’s struggling to find a good job—and I’m struggling with how to help him transition into the real world. How can I help him get his footing?
This is a great question given that today’s college students are graduating with unprecedented levels of debt combined with a challenging job environment. The good news, though, is that there are a number of ways that we can help our recent grads move down the road towards independence.
Don’t just write a check
That’s number one. If you are in a position to help your son financially, think carefully about what you are willing to pay for. For example, let’s say your son is living at home (according to a 2013 Pew Research report, 56 percent of kids 18-24 are!) and finds a part-time job. Start by discussing his expenses with him—transportation, food, clothes, entertainment, credit card balances, student loan payments, possibly even rent paid to you to cover his share of household expenses. Help him develop a monthly budget, and talk about what his salary will cover. Then you can consider supplementing his paycheck to handle his essentials, providing you can afford that.
Or if your son is living on his own, be clear about how you will and will not support his lifestyle. Ask to see his budget so that you understand exactly where your money is going. (If he doesn’t have a budget, that’s a red flag!) You won’t be helping him find his way if you pay for everything!
Give him an incentive to save
Saving is one of the hardest things to do on a small salary, but also one of the most important. Encourage your son to open a savings account where he can sock away money for an apartment, a car, or other goals. Also talk to him about the importance of an emergency fund. As an incentive, you could offer to match a portion of his savings.
Once he has earned income, encourage him to save for retirement by taking advantage of his 401(k) if his company offers one; otherwise, have him open a Roth IRA. Again, you might offer to match his savings, or contribute a certain amount with the proviso that he adds a percentage of his own income every month.
Show him the money
It can be hard to talk about money, but now’s the time. Show your son how you invest and manage your portfolio. Talk about your approach to risk and return. Give him some facts and figures to make it real.
Online tools are a great way to introduce investing concepts and basic portfolio construction. There are a number of websites that provide investing basics as well as tools and calculators that demonstrate how even a small amount in a diversified investment can grow over time.
Then help your son choose his first investment. With some seed money in his IRA, investing can come alive—and hopefully inspire a life-long interest.
Use your connections
With the majority of resumes submitted online and competition in the thousands for even the most entry-level jobs, a personal connection is invaluable. If you have professional associations or friends in a field related to your son’s area of education and interest, don’t be shy about approaching them for help in his job search. Even an informational interview can be an important learning experience and could open the door to future opportunities.
Be understanding—to a point
Graduates have to understand that they most likely won’t walk off the stage with their diplomas straight into their dream jobs. And we parents have to understand our kids’ challenges and the time it takes to land a job.
Keep talking openly with your son about his goals as well as your expectations. Be understanding and supportive—and be clear about the limits of your financial support. That may help each of you more easily accept the ups and downs that are all part of his ultimate personal and financial success.
Looking for answers to your retirement questions? Check out Carrie’s new book, The Charles Schwab Guide to Finances After Fifty: Answers to Your Most Important Money Questions (Crown Business, 2014), available in bookstores nationwide. Read more at http://schwab.com/book.
This column is no substitute for an individualized recommendation, tax, legal or personalized investment advice. COPYRIGHT 2014 CHARLES SCHWAB & CO., INC. MEMBER SIPC. (0714-4282)