Your Family Financial Guide for New Grads Entering Financial Independence

Seeing your child graduate is an emotional experience, and you’ll feel some nostalgia for their younger years. The right family financial guide can help give your new grads what they need to set themselves up. Read more on how you can set them up for success.

If you're a parent, a family financial guide can help you prepare your kids to transition into adulthood. It's time for your role to shift as your child becomes a young adult.

It’s a bittersweet moment, but your wisdom and support are needed now more than ever. The ins and outs of investments and savings are critical lessons to teach during this transitory period. This guide will show you how to raise your children to successfully manage their finances in adulthood. The framework laid out will help your family build wealth for generations to come.

The harsh reality is that many young adults will struggle to start their careers after graduation. Around 53% of recent college grads are underemployed or unemployed. Plus, looming economic uncertainty might further impact the prospects of those just entering the workforce.

Building financial literacy is essential for today’s graduates. Let’s go through the steps you should take to ensure your children achieve financial security.

Taxes, Savings, and Investments: The Financial Literacy Triangle

The transition from student to full-time work is abrupt for many recent graduates, especially those who don’t know how to manage their personal finances.

With a lack of dedicated course material to fill this need, it’s often up to parents to supply this financial education. Ideally, this starts in their early teens, but don’t worry if they’ve already entered their 20s. It’s never too late.

Begin with the basics. The financial literacy triangle teaches three fundamentals: taxes, savings, and investments. It prepares kids to face the reality of financial independence by teaching them about paying taxes, saving for short-term goals, and investing in their long-term well-being. In short:

• Taxes: Tax season is an ideal time to explain income taxes, deductions, and credits. Go over your tax return with your kids so they can see why their paycheck is less than they expected.
• Savings: Even young children can learn about savings, from the right type of savings account to how they work. Encourage them to choose a goal and help them work toward it.
• Investing: The years pass quickly, so talk to your recent graduate about planning for retirement early in their career. At this young age, time is on their side for investments to grow.

Controlling Debt

Teaching your children to approach debt responsibly and control their spending habits is one of the most critical lessons from this family financial guide.

It’s too easy for young people to accumulate unnecessary high-interest debt by charging up their credit cards, especially if other common obligations like student loans compound the situation.

Paying these debts off on an entry-level salary can be extremely difficult. Teach your kids early on how to set a budget that fits their needs and stick to it.

Sometimes loans are unavoidable—student loans and mortgages are examples of responsible debts your child will likely need to obtain. In these cases, teach your graduate how to allocate their funds in a way that, over time, will meet and overcome these obligations.

Utilizing Your 401(K)

New graduates often encounter life’s financial obligations for the first time and may not take a long-term view of their situation.

Retirement is far from the minds of young adults just starting their careers. Emphasizing the importance of early 401(k) contributions is a key topic to discuss with your new grad.

Explain that their 401(k) allows them to set aside a portion of each paycheck for their retirement fund. If their employer matches contributions, ensure your graduate is utilizing this benefit.

They can and should contribute more to their 401(k) if possible because they’ll accrue more interest over time with a larger investment.

Graduates with employers that offer automatic enrollment and escalation should take full advantage of these perks. These contributions happen automatically so the funds go directly to their 401(k).

Maximizing Savings at a Young Age

If you could go back to your 20s, you’d probably start by saving as much as possible during the early stages of adulthood.

Compound interest rewards proactive savers by growing at an exponential rate over time. If your graduate achieves a steady income early on and uses it to build their nest egg, their wealth will have more time to grow.

The ultimate goal is to set them up to accumulate wealth and pay down debts. Let’s look at some simple and secure investment tools your graduate can use to garner some tax benefits and save effectively.

High-Yield Savings

Any family financial guide worth its salt will tell you to skip a traditional savings account and instead look for a high-yield option. You get a much better interest rate on a high-yield account.

Over time, this can generate significantly higher returns for your graduate as they save for things like a downpayment on a home.

Interest rates fluctuate with the market, so the annual percentage yield (APY) quoted when you apply might change. Regardless, high-yield accounts will still accrue more returns than their basic counterparts. For example, the national average savings account APY is just 0.33%, which is 12 times less than high-yield accounts’ 4%.

The Right Financial Partner Can Set Your New Grad Up For Success

Seeing your child graduate is an emotional experience, and you’ll feel some nostalgia for their younger years. You’ll also feel incredibly proud of their success. Your graduate may be on the brink of their future career, but they’ll still need guidance from you to establish healthy financial practices that will see them through the rest of their lives.

Of course, to give the best advice on something as complicated, shifting, and life-altering as financial planning, you should consult with an expert. The experienced financial partners at Citywide Banks, a division of HTLF Bank can help you create a plan that prepares your kid for lasting wealth.

Reach out to Citywide Banks, a division of HTLF Bank to set up a meeting today.

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