Think back to when you were a kid. Or, if you are still a young adult, or teenager, think about how you started learning about money. Maybe you received an allowance for doing chores around the house. Or, maybe, you started your own lawn-care business and mowed your neighbor’s lawns. But, think back even further, who taught you about money?
For most of us, our parents, or guardians, were the first ones to teach us about money. Since personal finance isn’t taught in most schools, it was left to our Fathers, Mothers, Aunts, Uncles, Grandparents, other relatives, or parental figures to pick up the slack.
From large student loans to finding your first apartment, young adults are hit with a number of important yet unfamiliar financial challenges right off the bat. As a result, there is still some reliance on the parents for a number of financial obligations – car insurance, phone bills, streaming services, rent, etc.
For the young adults out there, here are a few ways you can “gift” some newfound independence for Father’s Day. And Dad’s, I know, I know, you’re supposed to be the ones receiving the gifts. But we’re going to include some “teachable moments” in here as well, so you can show junior how things are done!
Personal Finance Tips to “Gift” for Father’s Day
Money In, Money Out
Around 64 percent of Americans believe that young adults should be financially independent of their parents by age 22. But in reality, only 24 percent of young adults are financially independent by that age.2
While you may be a ways away from total independence, there are things every young adult can do now to understand their financial lives better. If you haven’t already, you’ll want to start keeping track of how much money is coming in every month and how much is going out. For parents out there with youngsters, you can start this at a very young age with a small weekly allowance.
Understanding what you earn versus what you spend is as basic a lesson in personal finance as there is.
Count all income sources such as stipends from school, income from a job or money from your parents. Next, list your recurring expenses such as rent, utilities, internet, streaming services, phone bill, groceries and any other consistent monthly expenses. Now, compare the two on a monthly basis.
Are you spending more than you’re earning? That means you’ll need to either increase your income each month or reduce your spending. If you’re spending less than you’re earning, what are you doing with the leftover amount each month? Could you be putting it towards a bill your parents are paying for you? Or maybe it could be used to pad (or start) your emergency savings or an IRA.
Establish Automation (Where Possible)
A great advantage you have is the ability to leverage technology when it comes to money management. If you have a credit card, utilities or other recurring expenses, it’s likely you have the option to establish automatic payments. Doing so can take the hassle out of paying your bills manually, while also eliminating the possibility of missing a payment. Missed payments can accrue interest or incur penalties, both of which can negatively impact your financial standings.
Parents, pull your young one aside while you’re paying the bills. Whether you still physically write checks, or pay online, this is a great teachable moment. It’s important to be familiar with how to pay a bill, as it can be intimidating at first.
In addition to bill paying, you may have the option to set up automatic deposits into a savings account or retirement savings account. When you take advantage of automated savings, it takes potential hesitation or forgetfulness out of the process. After a while, you may even forget money is being diverted to a savings account. This can be an effective tool in helping you reach specific savings goals without requiring much effort on your part.
Learn About Interest
Interest is one of THE MOST crucial lessons for young adults, and parents, to understand. It can either be your best friend or your worst nightmare.
Compound interest works positively in things like investment accounts, or savings accounts that earn interest.
Interest works negatively on things like student loans, credit cards or even mortgage payments. Basically any kind of debt.
Parents, again, bring those kids aside and show them a mortgage or credit card statement. This way they can familiarize themselves with the concept of paying down debt. And how it’s, most times, principal (what you borrowed) + interest (the rate at which you borrowed).
In hopes, that they won’t be too shocked when they make their first student loan payment and see that very little goes toward the principal at first.
This Father’s Day, you may find that the best gift to give a father in your life is the gift of increased financial independence. Of course, finding financial freedom is an ongoing process and won’t happen overnight, so don’t bite off more than you can chew. In the meantime, spending quality time with your Father, or Father figure is also a great way to show how much you care.
We sure spend a lot of time with our Dad here! Thank you to all the Father’s out there!
For more ways to teach your kids about money, check out this recent post!