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8 Tips to Set up Your Young Adult for Financial Independence
Just like teaching a child to ride a bike, teaching a child to grow into a financially independent young adult requires both time and patience. This transition is best taught with gradual changes, phased in over time. Here are a few tips to help guide your teenager or young adult into the world of financial responsibility.
- Set them up with a bank account. There's no better way for teens to understand how to practically spend, save, and navigate the financial system than having a bank account. At Port Richmond Savings, you can open up both a joint-access Savings and Checking account for your child. Our Minor Checking Accounts have no minimums to maintain, and also include the option of a PRS Debit Card/ATM Card with limitations on transactions. Having a bank account (or accounts) will allow your child to learn how the financial system works with real experience, all with your supervision. Learn more about PRS Checking accounts here.
- Help them build credit. Financial independence as young adults will be easier if children build credit as teenagers or if you help them build it by adding them to your credit card as an authorized user or help them sign up for a secured card. Be sure that your child pays the full amount every month and on time, which is the most important factor in building a good credit score.
- Start with small expenses. To build a sense of fiscal responsibility and an understanding of paying bills, start having your teen pay for small expenses, such as their portion of the phone bill, clothes, or haircuts.
- Make a savings plan. Emphasize the importance of saving to your teen. Consider explaining the 50/30/20 rule, which suggests using 50% of your income on needs, 30% on wants, and 20% on savings.
- Help them create a budget. Creating a budget can give your teenager or young adult a visual on where their income goes, how that savings plan fits in, and how they will be able to achieve their financial goals. Read more about budgeting and print out a budget sheet here.
- Be transparent about financial realities. It's key to be upfront with your teen about the cost of living, such as rent and groceries, as well as extra services, such as Netflix or Spotify.
- Be clear about the impact of debt. Some debt might be unavoidable, but excessive debt can be a significant burden to achieving financial independence. Helping your teenagers make money decisions that don't create debt will help them in the long run. If your young adult has student loans, help them make a plan to pay them off. Know your options for repayment and consolidation. The U.S. Department of Education has a Student Aid Simulator tool that might be helpful.
- Use mistakes as learning opportunities. We all mistakes and chances are, your teen will as well on their journey to financial independence. Use these moments as teachable moments so they can learn from their mistakes and make better decisions in the future.
From the American Bankers Association