Young Adults Need Core Financial Skills for Independent Living
When young adults head out on their own, they have the potential to make financial decisions that establish a sound foundation for the rest of their lives. Unfortunately, they also have the potential to create financial problems that will haunt them for decades. In the next few years they can build a foundation for a lifetime of effective financial choices, or they can begin a downward slide of over-spending, debt, and ignoring the future. It is undoubtedly easier to prevent a downward slide than to stop the slide once it has begun.
If you are a parent of a teen or young adult, ask yourself: are they ready for independent living? Even if the teens you care about are not your own children, you can still find ways to provide a good example and to encourage thoughtful decision-making.
Below are seven types of skills that will send a young adult down a path toward a lifetime of financial well-being.
-
Comparison shopping – ability to evaluate different options, examining not only the price but also the features of the product in relation to their own needs and priorities.
-
Evaluating information, including advertising – recognizing advertisers often present one-sided information, because their purpose is selling, and identifying sources of reliable information.
Resourcefulness – ability to see more than one way to meet a need or solve a problem. Examples: cooking instead of eating out, buying a new accessory instead of a whole new outfit, getting a haircut from a friend.
Realistic expectations – ability to recognize that scarcity is a fact of life; no one can have everything they want, and choices need to take into account both short-term and long-term satisfaction.
Checkbook management – ability to write checks properly, record them in the check register, record ATM transactions, keep balance up to date, and reconcile the bank statement with their register.
Consumer privacy – ability to keep secure key information such as social security number and credit card & bank account numbers, and to avoid excessive exposure to direct marketing by phone, mail or email.
Credit management – ability to selectively evaluate credit offers; understanding the costs incurred when credit card balances are not paid in full each month; understanding that paying only the minimum balance is a very costly decision; recognizing that “plastic” is still real money.
Keep in mind that it doesn’t do any good to have a skill if you do not use it. Young adults are more likely to believe these skills are valuable, and actually put them to use, if they have had a chance to practice them successfully and experience their benefits before they are out on their own. Use these tips and your own ideas to help your teens build the skills they need.
To build the first four skills, the following steps are valuable with both teens and younger children, as long as age-appropriate examples are used.
-
“Think out loud” about your own decisions, letting children hear about the factors you consider.
-
Talk about “choices” and “decisions.” For example: “I chose this because…,” or “I decided this was more important than…”
-
Involve them in planning a project with a fixed amount of money (a party, a vacation, room redecorating,…). Allow time so they can compare alternatives and generate creative ideas.
-
Watch television ads with your children and laugh with them about the assumptions: “I can’t believe they’re trying to tell us that if we drink that soda our lives will be fun and exciting like the people in the ad!”
-
Encourage them to work toward a longer-term goal (example: saving money for a special purchase, or working for weeks to make a complex craft project), so they can experience the benefits of investing now for results in the future.
To build checkbook skills:
-
Help teens open a checking account when they get their first job or several months before they leave home, to give them experience before they are on their own. Before turning 18, teens need an adult as co-owner of a checking account, giving parents an opportunity to be involved and teach basic skills.
-
Since some teens are more receptive to suggestions from adults other than their parents, ask bank staff to give the teen pointers on writing checks and avoiding common mistakes.
-
Expose younger children to checkbook management. Let them see you recording checks and balancing your register. Let them write out checks for you to sign.
To build consumer privacy skills:
- As opportunities arise, tell children about your own efforts to protect your privacy. Example: when you send in a warranty card, show them that you only write the essential information, and explain why you ignore the extra questions included for marketing purposes.
-
Explain why they should not print their Social Security number on their checks or driver’s license.
-
As they use the Internet and email, teach them about protecting their safety by not giving out information about their age and where they live. Then expand that lesson to include account numbers and other financial information.
-
Post a sign by the telephone reminding all family members not to give personal or financial information to telemarketers or to any incoming caller.
To build credit skills:
- Discuss with your child your own experiences and philosophy about credit.
- Let children see that every credit card purchase is included in the monthly bill.
- Show children or teens the paperwork and costs on a loan you have (mortgage, car loan).
- Send for your credit report and let teens see the information compiled.
- Show teens how credit costs are determined by how quickly you pay off a debt. For example, a $2,000 balance on an 18% credit card can be paid off in 11 months with payments of $200/month, at a total interest cost below $200. Monthly payments of only $50 mean a payoff time of 62 months, and interest cost of $1,077.
- As teens approach age 18, help them compare credit card offers received in the mail, looking at interest rates, annual fees, grace periods, other fees, and credit limits.
- Make it clear to your children that you will not bail them out of any credit difficulties. Also make it clear that it is better to catch any problems sooner rather than later, and that there are financial counseling agencies to help people make repayment plans.
- Encourage college students to think about ways to keep student debt as low as possible.