If you have children who are finishing college or embarking on their first full-time job, you obviously want them to get off to a good start in their adult and working lives. And by virtue of your years of experience, you probably have some good advice to offer – especially when it comes to making smart financial moves.
Of course, you can find a broad array of financial topics to discuss. But if you want to concentrate on just a few, you might consider these for starters:
Investing for the future – When young people are paying off student loans, they may not think they can also afford to invest for the future. Indeed, this can be challenging – but it’s not impossible. So, if your children go to work for an employer that offers a retirement plan, such as a 401(k), you may want to point out that they can have money automatically invested – and since they never really “had” this money in the first place, they are less likely to miss it. They can start by deferring small amounts; when their earnings rise, they can increase their contributions.
Buying a home and paying off a mortgage – With interest rates still low, now is not a bad time for prospective first-time homebuyers. Of course, if your children truly are starting out in the working world, it will likely take them a few years to save up enough for a down payment. But even after they reach that goal, you may want to warn them not to become “house poor” by spending a large portion of their total income on home ownership. If they do buy a house, though, and their incomes go up as their careers progress, they may wonder if they should pay down their mortgage quicker. While they might feel good about lowering that debt, you may want to point out that an argument could be made for putting money in assets that will likely be more liquid, such as stocks and bonds. For one thing, if your children were to lose their jobs, and they needed cash to tide them over until they were once again employed, they’d likely find it much harder to get money out of their homes than their investment accounts. Also, in terms of accumulating resources for retirement, they might better off building up their investment portfolios, rather than sinking every extra dollar into their homes.
Using credit wisely – Urge your children to avoid taking on excessive credit card debt and taking out non-essential loans. As you know, having a good credit score can pay off in several ways, including getting better rates on mortgages. You may want to risk sounding “old fashioned” by encouraging your children to live within their means. And consider pointing out that it’s often the people who are the most frugal today who may end up with the most money tomorrow.
It’s not always easy for young people to get off on the right foot, financially speaking. But as someone who knows a thing or two about controlling debt, saving and investing, you can help your children out by imparting a few words of wisdom.
This article was written by Edward Jones for use by your local Edward Jones Financial Advisor (member SIPC). Contact Stan at Stan.Russell@edwardjones.com.