money-financial-lessons-young-adults

Most schools don’t teach money management, so kids can ace algebra and graduate without a clue about how to manage their finances.

Financial psychologist Brad Klontz says most youngsters aren’t learning financial responsibility at home either.

“Surveys show parents would rather talk about the birds and bees than money,” Klontz says.

Set your children up for success as adults by teaching these six lessons:

1. Money comes from work.

While it seems laughably obvious, kids from wealthy families often have a flimsy grasp on the connection between work and money. From a psychological perspective, Klontz says whatever behavior precipitates receiving money reinforces that behavior. So, children who get money for nothing become adults who expect handouts.

2. Save for indulgences.

If you can buy a TV or car without saving, your children may not learn to delay gratification. “Why would I think it’s important to save for a rainy day if I’ve never seen rain in my life?” Klontz says. “The only way to teach that skill is to create some deprivation.” If your daughter wants a new wardrobe, encourage her to get a job instead of taking her on a shopping spree.

3. Live within your means.

Young adults should practice budgeting before they leave the nest. Diana Crabtree, CPA and author of “Money for Teenagers,” says parents should make kids responsible for discretionary expenses, like gasoline and entertainment, while they’re living under your roof. She recommends Mvelopes, an online spending management tool that mimics the old “envelope budgeting” system.

4. Stay out of debt.

Using credit responsibly is another skill that requires practice. Crabtree suggests co-signing with teens on a low-limit credit card so that by the time they’re working (and eligible for more credit), they’re in the habit of paying cards off each month and understand how interest accumulates if they carry balances.

5. Credit scores matter.

Young adults should understand how late payments and credit card balances impact credit scores. “By the time they go to college, kids should know how a bad credit score impacts their ability to get a car loan and buy a house,” Klontz says. Credit Sesame is a free credit-monitoring service that explains factors affecting your score. (Not sure how to build good credit? Here’s what you need to know.)

6. Time is an asset.

Young adults may not have much money, but time is on their side. Bill Edgar, Elburn dad and author of “The Minimum Wage Millionaire,” says people who begin investing early can create wealth because money earns interest that compounds over time. He says Fidelity and Charles Schwab offer brokerage accounts with low or no initial investments and don’t charge fees as long as you make periodic deposits. Parents can set up custodial accounts for minors, and Edgar says kids should begin investing as soon as they start earning money so they’re in the habit by adulthood.