Preparing Young Adults for Financial Success: 5 Crucial Lessons Before High School Graduation

In a previous blog, I delved into the pivotal role parents, particularly mothers, play in shaping their children's relationship with money. Today, I aim to expand on this concept by discussing the most crucial financial lessons we can impart to young adults as they prepare to embark independently into the world. Instilling strong financial literacy in young adults at an early stage is vital for their future success and well-being. By sharing these five important financial lessons, my goal is to help you equip the next generation with crucial knowledge to navigate their financial journey.

Lesson 1: Budgeting Basics and the Power of Saving

One of the foundational lessons in personal finance is understanding the importance of budgeting and saving. Young adults should be introduced to the concept of creating a budget, tracking income and expenses, and setting financial goals. Encourage them to save a portion of any income they receive, whether from part-time jobs, allowance, or gifts. Establish the habit of saving early, even if it's just a small amount. In the long run, consistent savings can accumulate and provide a financial cushion for unexpected expenses or future goals.

Lesson 2: The Power of Compound Interest

Teaching young adults about compound interest is crucial to help them grasp the benefits of long-term investing. Explain how compound interest works, emphasizing the impact of time in growing their savings significantly. Introduce them to the idea of investing, such as opening a retirement account or a low-cost index fund, and show them how starting young can greatly amplify their returns over time. You can even reach out to your financial advisor to provide visual examples to help your teenager understand this important concept.

Chart source: https://money.usnews.com/investing/investing-101/articles/2018-07-23/9-charts-showing-why-you-should-invest-today 

Lesson 3: Credit and Debt Management

Before embarking on their adult financial journey, young adults need to understand the importance of responsible credit and debt management. According to a survey conducted by WalletHub, the average credit card balance among college students is $1,990, and the percentage of students who pay their credit card bills in full monthly has declined by 12.50% since 2018*. Most young adults could benefit from specific guidance on how to manage credit cards once they are living more independently. Explain how credit scores are calculated, the significance of a good credit score, and how credit affects their financial future, including car insurance rates and securing their first apartment. Teach them the perils of excessive debt and the importance of making timely payments to maintain a positive credit history. Encourage responsible borrowing practices and show them how interest rates can impact the overall cost of loans.

Lesson 4: Differentiating Between Needs and Wants

In today's consumer-centric world, distinguishing between needs and wants can be a challenge for young adults. Teaching them to prioritize their spending by identifying essential needs - like health insurance and supplies to help them at school or their work - versus discretionary wants is crucial for maintaining a balanced budget. Encourage thoughtful decision-making by discussing the opportunity cost of each purchase and how it aligns with their long-term goals. Encourage them to be mindful in how they are spending so they are not surprised by high-cost bills at the end of the month.

Lesson 5: Investing in Personal Growth and Education

Investing in oneself is often overlooked but is key to achieving financial success. Teach young adults the value of lifelong learning, gaining new skills, and pursuing higher education. Help them understand the correlation between education and long-term earning potential. Encourage them to seek out scholarships, grants, and other financial aid options to reduce the burden of student loans.

Equipping young adults with essential financial knowledge is a gift that will benefit them for a lifetime. By teaching budgeting, the power of compound interest, credit and debt management, differentiating needs from wants, and investing in education and personal growth, we empower them to make informed financial decisions. Let's prepare the next generation to navigate their financial journey with confidence and build a solid foundation for a bright financial future. Please do not hesitate to contact me or the experienced financial advisory team at Legacy Financial Planners if you have any questions about imparting these essential financial principles to your loved ones.

Source:

*https://wallethub.com/edu/cc/credit-card-statistics-for-college-students/25535

For more information on essential financial education topics for your family, read our 10 Financial Fundamentals by Bill Elson, CFPⓇ, Partner and Financial Advisor at Legacy Financial Group.

(https://lfgplanners.com/wp-content/uploads/2023/03/Ten-Financial-Fundamentals.pdf)