Whether they’re eighteen or twenty-eight, moving out of home or moving interstate, we all want our kids to be responsible and independent young adults when the time comes to leave the nest. But with independence, comes great financial responsibility. Being accountable for your own income and expenses for the first time can be difficult and it’s easy to become overwhelmed.
To make for an easier transition, here are five essential financial skills to impart upon your teenager or young adult before they pack their bags and head out into the world.
One of the first things to teach kids before they move out is the basics of how to understand and pay a bill. With most bills now issued and paid online, the entire process may be a bit of a mystery to some young adults.
Take the time to break the bill down into its various components and explain the importance of reviewing the charges carefully. Have them get involved in paying some utility charges – not only will it teach them how to read and pay a bill, but it help them build a realistic picture of just how expensive things like gas and electricity can be. In addition, they’ll also build the skills to be able to identify potential errors so they don’t get overcharged by billing companies.
It can be quite a shock to discover how expensive moving out can be. With increasing use of credit cards and online spending, money has become somewhat invisible and it can be hard for children to grasp the actual cost of things.
Demonstrate to them how you manage the day-to-day household finances and how purchases can affect one another (for example, spending $100 on this, means $100 less for something else). Explain the importance of responsibly handling debt, delaying gratification and investing for future goals with everyday examples they can relate to.
Navigating the world of insurance can be quite daunting, especially if you’ve never done it before. While not particularly exciting, insurance can be a costly responsibility so explain the importance of comparing policies and inclusions.
Though many young adults may be covered under their parents’ health insurance policy until a certain age, it is worth ensuring they understand the basics for when it’s time to take out their own single or couple’s health insurance policy.
Likewise, having a basic understanding of the different types of car and contents insurance will help young adults feel more confident when reviewing policies and dealing with providers on their own.
Despite what many teenagers and young adults seem to believe, credit is not free money. Explain how credit providers make a profit from fees, charges and interest and demonstrate to them using practical examples how you can end up paying a lot more for initial purchases.
Outline the different types of credit – personal loans, credit cards and payday loans – and highlight the pros and cons of each. Being familiar with common credit jargon and how to read the terms and conditions of a basic credit agreement will help young adults understand their contract better and hopefully avoid unnecessary debt.
As soon as your teenager or young adult is earning enough income, they should be shown how to complete their own tax return. Make sure they understand the importance of keeping records and receipts, the information required by them and where to obtain it.
Assisting with their first return will help avoid any errors and can give your young adult the confidence to attempt it on their own in future years.
Learning about money is a life-long activity. Allowing your kids to be involved in financial matters long before they leave the nest and approaching money issues with a positive attitude will help your young adults be financially confident and independent for years to come.