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What to Teach Your Adult Child About Money

How to offer your son or daughter lessons in Personal Finances 101

By Randi Mazzella

When my oldest daughter graduated from college, I was amazed to discover that she had never taken an economics or finance class. Her education helped her secure a prestigious job doing medical research, yet she had no clue how to budget, do her taxes, invest or find out her credit score.

Adult Child
Credit: Adobe

It turns out that my daughter's experience is not uncommon. When AIG Retirement Services and EVERFI conducted a research study surveying 30,000 college students, only 35% of respondents reported ever having taken a personal finance course. Worse: 47% felt unprepared to manage their money.

Parents can take some of the blame for young adults’ lack of financial literacy. Kelly Ennis, a Certified Financial Planner and president of Infinity Financial Strategies in Granby, Conn. says: “Parents tend to shy away from discussing finances with their children and teens. They don't know what to tell their kids and worry that their kids will discuss their family finances with friends."

Although retirement may seem far off, explain why investing in a 401(k) or other retirement savings plan immediately makes financial sense.

But financial advisers suggest parents of sons and daughters in their early-to-mid 20s sit down with those kids and teach them the following six basics of personal finances. By doing so, the adult children will be more likely to be financially sound in years to come.

1. Make a Budget

The AIG/EVERFI survey found that only 49% of students plan to follow a budget. That’s down markedly from 76% in 2012. Yet money pros view  budgeting as one of the simplest and most useful tools for managing money.

Meet with your adult child and work together to create a realistic monthly budget. It should list all regular, essential expenses and a line for non-essentials — “fun money” — like restaurants and travel.

Joe Duronio, vice president, strategic planning & research for AIG, says, “Especially in this digital age, when it is easy to impulse buy online, a budget helps young adults see where every dollar they earn is going and what funds they really have available to spend.”

Apps like Mint (free) and Acorn ($1 to $3 a month) — the two best for budgeting according to NerdWallet — can help.

2. Build a Safety Net

Before your adult child can start thinking about saving and investing for the long-term, it’s essential to open and fund an emergency savings fund at a bank or credit union. This is savings your son or daughter could withdraw at any time, when necessary, without paying a financial penalty.

This kind of safety net serves another purpose, too. Ennis says: "I call this a 'walk away' fund. It's money set aside so that they can make better decisions in the future and walk away from situations when they need to."

Having a safety net lets your child leave a dead-end job or an unsafe living environment without having to worry, “How will I pay my  bills?”

This savings account will also let your child earn a little interest, too. Nationally, savings accounts pay 0.10% on average and money-market accounts (which limit the number of withdrawals per month) pay 0.25%. Typically, accounts at online banks pay more than those of brick-and-mortar institutions. Sites like and have directories of the highest-paying savings accounts.

3. Understand Taxes

Teaching your child about taxes — deductions, credits, withholding, Social Security taxes, record keeping, estimated taxes, filing dates, tax forms and the like — won’t be fun, but it’s extremely important.

That’s especially true if your son or daughter — like so many millennials — isn’t employed by a company, the government or a nonprofit, but is a freelancer or independent contractor.

“I often find that some people don't realize that they're considered self-employed,” says Ennis. “They mistakenly believe that if they get any check, that they must be an employee.”

Explain that true employees have taxes withheld from their paycheck and their employers also pay half of the Social Security and Medicare taxes, or FICA. Conversely, if they’re self-employed, they are responsible for both halves of FICA and for making quarterly estimated payments for federal taxes and, if applicable, state taxes.

If your child is an employee, talk about how to withhold the right amount on a W-4 form. If your son or daughter holds multiple jobs — some without withholding — taxes may be due come April 15.


4. Maximize Your Employee Benefits

Make sure your child knows that whenever he or she gets a full-time job, it’s essential to read all the paperwork before signing anything. Says Duronio: "Take a look at the totality of the benefits, not just salary. Human resource personnel are happy to walk new employees through their contract specifics.”

Encourage your child to take advantage of benefits such as gym memberships, continuing education classes and student loan repayment assistance. Discuss whether your child should go on the employer’s health plan or remain on yours until aging out at 26.

Although retirement may seem far off,  explain why investing in a 401(k) or other retirement savings plan immediately makes financial sense, especially if the employer matches employees' contributions.

Duronio says, "It's effectively free money, both the amount the employer matches and the fact that it lowers your pre-tax income."

5. Manage Debt Wisely

The AIG/EVERFI study said "Six in 10 students have already taken or plan to take loans to cover their tuition bills —  alarmingly, only 65% of borrowers plan to pay off these loans on time and in full." Ellis points out that not paying back loans can adversely impact a person’s credit score for years. And that, in turn, could make it harder for your child to be approved for a mortgage or car loan, or get the best interest rate on one.

The survey also found that “more than one in three students with credit cards already has amassed more than $1,000 in credit card debt. Further, only 51% said they would likely pay off their entire credit card bill next year.” Deliberately keeping a balance on credit cards means paying more in interest than might be necessary, often with high interest rates.

Shawn Ballinger, a Certified Financial Planner and wealth coach at Columbus Street Financial Planning in Columbus, Ohio, says, “The idea of having things like vacations now and paying later may sound great, but is ultimately dangerous if you can’t afford to pay the money back.”

Remind your child that maintaining a good credit score doesn't mean not ever borrowing money; it's about paying back loans on a timely basis.  If they buy an asset (such as a car), secure a loan and pay it off, they can build credit responsibly.

6. Invest Wisely

Once your child has an emergency fund, encourage him or her to invest wisely by coming up with an overall strategy that takes into account long-term, medium-term and short-term financial goals. Ballinger says, “I recommend keeping at least 10% of your long-term savings in a fixed income or cash instrument [like a money-market fund] to take advantage of market corrections via rebalancing [to return the portfolio mix to what your child intended].”

He also suggests young adults with a 401(k) diversify in the stock market by putting money into the fund’s S&P 500 account. Ballinger explains: “Passive stock index funds are a great way to achieve market exposure. But be careful with a passive bond fund [a fund that owns and holds a variety of bonds]. If interest rates rise sharply, a passive bond fund may lose significant value,” if it has long-term bonds.

Ennis suggests talking to your child about investment risk, too.

“It is critical that a prospective investor understands how much risk they can stomach and then build a portfolio that doesn't exceed that level of risk.  If their portfolio swings by a larger degree than they can handle, they are likely to get out of their investments when they get too anxious — and that usually happens when the investments have lost value.”

Randi Mazzella
Randi Mazzella is a freelance writer specializing in a wide range of topics from parenting to pop culture to life after 50. She is a mother of three grown children and lives in New Jersey with her husband.  Read more of her work on Read More
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