What's the Best Way to Give Your Grad a Financial Head Start?


by Carrie Schwab-Pomerantz

Dear Readers, It happens every year. As grads get ready to enjoy their upcoming independence, I start getting questions from concerned parents who are well aware of the myriad financial responsibilities their new graduates are going to face. They want to help—just enough to get the kids started, but not enough to destroy their motivation.

I’m all for one generation helping the next, but it’s a balancing act for sure. Realistically, with today’s competitive job market, we can’t expect our kids to land their dream jobs right out of the gate. But we can expect them to be responsible, resourceful and aware of the importance of making good financial decisions no matter their job or their starting salary.

So how can we give our kids an initial financial boost without being their banker? I think it’s a combination of tough love, encouragement and providing some basic financial guidelines.

This can be the tough part. Whether your support comes in the form of extra money, help paying down student loans, or a place to live for a while, make sure you set some parameters. What will you pay for? What expenses will be shared? How long will the arrangement last? It’s important that you set expectations—and limits—right from the start.

Financial independence starts with setting goals and saving for them. So whatever your kids are working towards—first and last months’ rent on their own apartment, a car or even an emergency fund—encourage them to open a savings account and sock away a portion of their earnings on a regular basis. As an incentive, you could offer to match a percentage of their savings.

Also encourage retirement savings from the get-go. If they have the chance to contribute to a 401(k), great. If not, assuming they have earned income, you can suggest they open either a traditional or a Roth IRA. Again, you might offer to match their savings provided they have enough earned income, or contribute a certain amount with the proviso that they add a percentage of their own income every month.

To me, there are certain universal financial guidelines that are important for anyone at any age, but especially for a young person learning to manage their money for the first time. They may seem like simple tips on the surface, but can be challenging to do consistently. Talk to your kids about them, what to do first and how to prioritize. Then keep the conversation going.

Spend Mindfully. This means knowing where your money is going—and where you want it to go. Set realistic goals. Know when you have to cut back and when you can afford to treat yourself. Control your money rather than having it control you.

Live within your means. Look at your needs vs. your wants. Use an online budgeting tool to add up essential expenses then subtract this amount from your monthly income. Realize that you can’t spend more than what’s coming in.

Put Bills On Automatic. Take advantage of online bill pay and direct deposit. Set up automatic payments for your regular monthly bills, as well as an automatic transfer from checking to savings.

Be Smart About Credit. Charge only what’s absolutely necessary and always pay off your monthly balance in full and on time. To make life easier, limit yourself to a single credit card, at least to start.

Prepare For The Unexpected. Set aside a certain amount each month, no matter how small, for emergencies. Aim for an emergency fund to cover three-to-six months of fixed expenses in case you become ill or unemployed. Put the money someplace easily accessible, such as in a savings account.

Get Insurance. Health insurance is an absolute must at any age, as is car insurance if you own a vehicle. Renters insurance is a relatively inexpensive must once you have your own apartment. In addition, disability insurance is a smart addition to your arsenal of protection.

Keep Saving. Make saving a part of your monthly budget, ideally through automatic payments from checking to savings. Set some goals—a trip, a new car or even a special night out—and use them as a motivation to save.

Plan For Retirement. If your employer offers a 401(k), aim to contribute 15 percent of your income. At the minimum, contribute enough to get the full company match and try and increase it 1-2 percent each year from there. If you don’t have a 401(k) or other employer-sponsored plan and you have earned income, open a traditional or Roth IRA.

Stay On Top Of Student Loans. Always pay at least the minimum on time each month. Check out studentaid.gov for more information on repayment options and possible loan forgiveness programs.
Learn To Invest. Once you have built up your emergency fund, consider putting your long-term savings to work by investing. A good choice could be a low cost, well-diversified mutual fund or exchange traded fund (ETF). Investing in stocks gives you the opportunity for long-term growth, valuable at any age, but especially when you’re young. There’s lots of investing information online.

This is a new time in life for you as well as your child. It’s a time for letting go, but it can also be a time to forge a whole new relationship; one in which you respect each other’s independence and are mutually supportive. You’ve worked hard to help your kids get to where they are today. Now, with your continued (but perhaps more subtle) guidance, you can watch and be proud of the capable—and, hopefully, financially responsible—adults they’re becoming. Congratulations to all of you!

Carrie Schwab-Pomerantz, CERTIFIED FINANCIAL PLANNER(tm), is president of Charles Schwab Foundation and author of The Charles Schwab Guide to Finances After Fifty, available in bookstores nationwide. Read more at www.schwab.com/book. You can e-mail Carrie at This email address is being protected from spambots. You need JavaScript enabled to view it. The Charles Schwab Foundation is a 501(c)(3) nonprofit, private foundation that is not part of Charles Schwab & Co., Inc., or its parent company, The Charles Schwab Corporation. The information provided here is for general informational purposes only and should not be considered an individualized recommendation or personalized investment advice. The investment strategies mentioned here may not be suitable for everyone. Each investor needs to review an investment strategy for his or her own particular situation before making any investment decision. All expressions of opinion are subject to change without notice in reaction to shifting market conditions. Data contained herein from third-party providers are obtained from what are considered reliable sources. However, their accuracy, completeness or reliability cannot be guaranteed. To find out more about Carrie Schwab-Pomerantz and read features by other Creators Syndicate writers and cartoonists, visit the Creators Syndicate website at www.creators.com.

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