By Taylor J. Kovar, CEO/Founder – Kovar Wealth Management

 

 

–Hey Taylor: I’ve got two kids in college and I’m excited about their future careers but nervous about how they’ll manage their money. Any tips I can pass their way? – Sydney

 

–Hey Sydney: So. Many. Tips. Understanding how to make, save, and spend money is invaluable for anyone transitioning from a carefree teen to a responsible adult. Most lessons are learned through experience, but preparing your adult children for those experiences is what can make all the difference.

 

  1. Debt. There’s good debt and bad debt, but people have to earn the privilege of messing around with good debt. It’s a rare 20-year-old who can take out a loan to start a business or become a property owner, so one of the best pieces of advice you can give is to avoid credit card debt like the plague. The average person in their early 20s has about 10K in debt, and every dollar owed is one that’s not earning interest or doing anything proactive. Again, people typically learn the hard way when it comes to paying interest. If you’re able to make your kids understand how bad debt holds a person back, you might save them years of financial struggles.
  2. Budgeting. People budget to varying degrees, with some tracking every penny and others dividing their funds into a few general categories. My ideal budget has 10% going to tithes/charity, 10% going to investments, 10-20% going to debt or other savings goals, and the rest covering the many expenses life throws your way. You might not be able to get a college student to commit to this kind of structure right away, but teaching them to keep multiple financial balls in the air will prepare them for long-term success. Otherwise, they’ll put all their earnings toward one shiny object and hamstring their spending power in a big way.
  3. Investing isn’t just for older people. It seems so boring when you’re at the end of high school or the beginning of college. Buy stocks instead of going on a ski trip with friends? No way! Meanwhile, if a 19-year-old starts investing $50 a month and gets a meager 4% return, they’ll have raked in over $1,200 in interest before they’re 30. That interest will keep compounding and earning more, without ever bumping the investment amount up from $50 (hopefully the investment amount will go up over time)! The point is, the earlier you start investing, the better!

 

It’s hard to make people understand patience and strategy when they haven’t had a chance to learn these things practically. At the same time, discussing these broader topics and leading by example can help a young adult make better decisions than someone with zero guidance. Hope this helps!