It’s that time of year again when we spend time celebrating the accomplishments of high school graduates and see them off into the world. This is another special year for us as we are getting ready to send our second daughter off to college! It is both exciting and nerve-wracking to think that in a few short weeks, she will no longer be living in our house every day. The life transitions can be so hard so as parents and loved ones of those who are leaving the nest, it is our responsibility to send them into the world prepared for all things, including how to make smart money decisions.
Not all graduates will go to college and that is a good thing! We need people to enter the trades or go directly into the workforce. Some folks are military-bound with the commitment to protect our country if called upon. It doesn’t matter what path our young folks choose, money advice applies to every situation. Here are three main tips to pass on to the Gen Zs in your life that are making the transition to adulthood:
1. Create a budget: Everyone should know where their money is going so it is important to take the time to track your expenses. This will help you understand how much you spend and where you can cut back on unnecessary spending. If you are college-bound and need to borrow money for school expenses, you will need to pay back your student loans so learning how to budget is especially important. Also, in your budget, there needs to be a line item for savings. You should always pay yourself first so you can plan for bigger things you may want to do in the future and have funds on hand in case of an emergency.
2. Build credit wisely: Find one card that you can use with a limit you can pay back each month in full so you do not pay interest. It can be tempting to use credit cards for purchases, but it is important to remember that you will have to pay back the money eventually and interest rates are exceedingly high in the current marketplace. Avoid the freebies on college campuses to sign up for a credit cards – you do not need another water bottle! I always tell people to use a card for the things you always must buy, like gas or groceries, and then pay the balance in full each month. This will help build a solid credit profile and an excellent score, which is critically important to have for the long term.
3. Understand the basics of investing: The days of earning decent interest rates on savings accounts are long gone and young adults need to look at long-term investments for real money growth. It is important to learn the difference among the types of investments you can make, such as a Roth IRA, how to participate in a 401(k) plan, and the value of compounding interest and time value of money. These are the tools that will help anyone retire sooner rather than later and accumulate significant wealth over time.
It is exciting for many young people to have a newfound sense of freedom as they make the transition into adulthood and independence. I know my daughter is looking forward to making new friends and exploring a course of study at college of her choosing to hopefully become an athletic trainer in the future. I also know she thinks I am a broken record when I talk about these things with her, but as more Gen Zs walk across the high school stage and into their future, these money talks will be the key to their long-term financial success no matter what path they are on.