How You Can Help Millennials Gain Financial Independence
They’ve been called “The Boomerang Generation.” Increasingly, young adults return home after graduation without the financial independence to leave the nest.
A recent college graduate, my son lives at home. He has a goal of leaving the nest as soon as possible and striking out on his own. As my husband and I share this goal with our son, we’ve provided some financial guidance to prepare him for this next step and ensure his financial success.
Time for a Reality Check
Work with your boomeranger to see things realistically. I would encourage any working recent graduate, even if they still live at home, to take responsibility for their finances and set a budget. This means tracking expected income and expenses. The millennial generation has a reputation of being tech savvy. A number of programs and smartphone apps can help digital natives manage a budget. Some helpful ones include Mint and Easy Envelope Budget Aid.
To get started with the budget process, track all fixed expenses, such as rent, car insurance, phone expenses and repayment of school loans. This alone will present a realistic picture of what you can afford in terms of variable expenses, such as groceries, eating out, entertainment and clothing. Parents might want to remind their young adult to set aside funds for periodic needs such as car repairs, health care and medical deductibles.
Have an open discussion about the real cost of taking on credit card debt. The realization of how long it takes to pay off this type of debt can temper the practice of using plastic to cover unplanned expenses or give in to the temptation to buy unaffordable luxuries. Everyone should acquaint themselves with a credit report and know the importance of checking in on one’s credit report regularly. A young person may not realize that their credit history may be important for far more than getting a loan to buy a car. Apartment rental companies, auto insurers and even future employers will review a person’s credit history.
If your son or daughter still lives at home, consider charging rent and a share of the utility and cable television costs to provide realistic expectations of what expenses will be like away from home. If you do not expect your child to pay their own way at home, encourage devoting extra funds to paying down student loans and other debt. This includes research on apartment rentals and saving funds for a security deposit, first month’s rent and furnishings.
Make Savings a Priority
Millennials and baby boomers alike need to make savings a priority. I personally encourage the use of at least three bank accounts for those on the road to financial independence. These include a regular checking account for regular expenses, a short-term savings account for periodic expenses (such as car repairs), and another savings account to either accumulate funds to leave home or, if already out of the nest, to save for a down payment on a home.
Retirement may be decades away for a millennial, but a discussion about saving for retirement can’t come too early. I encourage retirement savings for all young people, even if they just start with small contributions from every paycheck to a retirement savings account. Many 401(k) plans offer matching contributions. Even small amounts of savings, because of the value of interest compounding, can grow substantially over time.
Encourage a Long-Term View
Young adults might envy one of their peers driving a new car or a friend who always has a new outfit, but I’ve had many discussions with my children about the realities behind a free-spending lifestyle. I tell my kids that friends could be struggling under a pile of debt along with having flashy wheels or another adorable pair of shoes. I remind them that I also once drove a clunker of a car and that that we did not have the things we have now at their age. By encouraging good financial habits now, you will help your children achieve financial security when they leave the nest and for years beyond.