Posted by Christopher | No Comments
As children become young adults there are many life skills that are important for them to learn. Whether it be taking more personal responsibility, learning the value of hard work, or finding themselves as an individual I’m sure that we would all agree that there is a particular skill set that they need to acquire before becoming fully independent. Among that skill set young adults need to learn how to manage their own personal finances.
It’s a fact that the earlier one not only learns, but puts into practice ideas of investing the more financially sound that individual will become in the future. Responsible investing comes with knowledge of money, therefore it would be important to educate the ones we love on how to do this correctly and avoid common pitfalls that too many of us or acquaintances have made.
A useful way to teach this productively is to create a checklist or a small workbook based on the five topics discussed below. It’s clearly up to you to establish how in-depth you would like to go with teaching the young adult on how to be financially responsible.
1-Keep an accurate budget. This may be among the biggest challenges for young adults and for our nation in general. Excessive spending and being powerless in the face of debt can have a lasting negative impact on ones future savings and lifestyle. Debt causes unwanted stress and can trigger illness or unwanted situational issues. It is vital to maintain a budget and to be able to physically see how much money is being spent and where it is being allocated. Make sure that when money is earned that you pay yourself first. That is to say that before any bills are paid, the young adult set aside a portion of their earnings to invest or save for the future. This will teach him/her to live off less while building wealth. Once this task of setting aside money is completed he/she should proceed with paying bills and mapping out a monthly budget to anticipate upcoming financial burdens whether it be a prom or a car payment.
2-Get Organized. Keep all important financial documents in a systemized order. This can efficiently be done in a file cabinet or in a digital database. As young adults practice this fundamental skill it will allow them to easily access all the papers they need currently or in the future. When tax time comes for them, they will be able to instantaneously walk to every document needed. This can save a lot of time and reduce a lot of stress in their early adulthood and later on in life.
3-Consolidate Debt-Destroy Credit Cards. Many credit card companies and loan agencies have made fortunes on 18 year olds because they are uneducated on how credit cards and loans work. There are countless stories of how young adults believe that when they get a credit card it means ‘free money.’ These are the same youngsters who are now adults and are buried in debt. The proper education can help them avoid some of the worst financial scenarios. Teach your youngsters the proper meaning of credit cards and loans; instruct them to be wise and prudent in making large purchases. Show them how interest can either be their friend or worst enemy. This will save them headaches, sleepless nights, and it will allow them to take advantage of more opportunities. Note: cutting up a card does not ‘cancel’ it. Call or write first.
4-Credit Score. Earlier in my career I worked as a paralegal helping individuals restore their precious credit score. I literally spoke with over 40,000 Americans who had hammered their credit with unwise spending habits. When I spoke with them it was usually because they were trying to purchase a new home or a much needed vehicle for work. Lamentably, with a subprime credit score you can barely finance a Jolly Rancher let alone a vehicle. So educate them on how credit works. There are various web sites such as www.myfico.com.
5-Prevent Identity Theft. Identity theft can be one of the most personally devastating occurrences for a young adult. When I was in college, one of my best friends had her identity stolen after she shared a social security number. The person drained her bank account and left her stranded with little more than the clothes on her back. Because of her identity getting stolen, she had to quit school and move in with friends and start working two jobs. After two years she finally recovered what she had lost but it would have been much more advantageous if she had kept her social security more exclusive. Make sure your youngster has a paper shredder and help them destroy any other mail documents that might reveal their identity to someone rummaging through their garbage. Also help them learn about purchasing items online. Make sure they only use a secure website or PayPal which acts as an online bank account that has taken many security measures to insure that their customers keep personal information secretive.
Money can be a powerful resource if managed correctly. Without the proper education it can spell out a disastrous fate. Remember, a better understanding and richer education leads to more informed decision making. Stress is inevitable but if you help to instill these 5 skills in your loved ones, life will be much more enjoyable for them AND for you.