The Best Gifts for Grads

You’ve seen momentous changes in the life of your son or daughter. You helped them take their first steps and learn to ride a bike. Now they’ve graduated from college and “officially” entered adulthood. What makes a good graduation or house-warming gift? You can’t go wrong with solid financial advice, particularly this summer, when jobs are scarce.

Give Them a Guiding Philosophy
One sure way to build net worth over time is to live below your means. Of course, spending less than you make is easier said than done for young adults. Excess cash in savings and checking accounts can easily disappear.

A budget can help your grad control his or her spending. The best way to track this information is to compile three lists: debt, expenses and earnings. A budget should also allow for some savings, no matter how small. Saving is an important habit to develop at a young age.

Saving money for the sake of saving money is not appealing, but establishing a few short- and long-term goals can lead to success. They make the process of saving money real, giving your son or daughter a way to measure progress, and make the sacrifices of saving easier to accept.

Make the Most of Total Compensation
Salary is not the only form of pay. Equally important are benefits like health, life and disability insurance, retirement plans and paid vacation time. Some companies offer subsidies for education and health clubs and discounts on services or products, including company stock. Encourage your adult child not to leave money on the table!

New workers tend to do one of two things when it comes to taxes—they withhold too much or too little. Teach your grad that withholding too much means the government keeps his or her money interest free—money that could go to a retirement or emergency fund.

Get a Head Start on Retirement
People in their 20s should sign up for their company’s 401(k) or 403(b) plan the minute they’re eligible. Putting money aside for retirement is always a good idea, but an employer’s retirement plan accomplishes far more than simple savings. In addition to the employer’s matching contribution, such a plan teaches new workers the value of “out of sight, out of mind” savings—when money goes into savings before they have a chance to spend it.

Tame the Debt Monster
The two biggest sources of debt among young adults are credit cards and student loans. Generally, student loan payments should not exceed 8-10% of the borrower’s gross monthly income. Help your son or daughter explore student loan consolidation and establish automatic monthly payments from a checking account.

It can be hard to get along without credit cards in this increasingly paperless society, but even a relatively low credit card balance can grow into an unmanageable burden. Encourage your grad to manage credit cards wisely by doubling the minimum monthly payment and making payments on time.

Keep a Lid on Housing
A good rule of thumb for new college grads is to spend about 25% of their income on housing. This includes rent, parking, and utilities. Decisions about where to live can be emotionally charged. Before signing the lease, help your child consider his or her priorities. The more they spend on a place to live, the less they’ll have for their social life, travel, hobbies, and savings. By holding the line at 25% or less, they’ll be better able to fund a down payment on a house someday.

Insurance Is Not an Afterthought
Young adults must find another insurance resource if their employer has a waiting period, if they are unemployed, or if they can’t piggyback on your health plan. Encourage them to research temporary health insurance plans or join a local HMO. If your grad is single he or she may not need life insurance, but auto, renter’s and disability insurance are necessities.

“If Only I Had Done This Earlier!”
As a financial planner, I’ve heard this many times. Here’s your chance for a do-over with your grown children. Help them establish good financial habits from the outset and you’ll help them lay the groundwork for a flourishing financial future.