Eau Claire (Baird)- Andy Schlafer with Baird shared some ideas on how to help your child get off on the right foot when taking their first job out of college.
Most parents continue to play a critical role in guiding their children even after they graduate from college and are out of the family home. Most parents have "told" their kids how to be financially responsible, but now is when you can help them live it and encourage them to develop important habits.
Most young adults take on debt for the first time and parents can advise them on how to avoid as much debt as possible. Encourage them to set up automatic payments to avoid late charges. Talk to them about their credit score and the impact it can have on their future costs of borrowing. Show them the impact of defaulting on debt.
It's at this point that young adults need to make significant financial choices regarding benefits that their employer might offer them such as insurance and 401(k) plans. Parents should instill the message of "pay yourself first". They've probably never earned this much money before, and if they don't get in the habit of saving 10-15% now, it will always be harder to start later on.
If your child's employer doesn't offer a retirement plan, encourage them to set up an IRA or a Roth IRA on their own. They still need to get in the habit of paying themselves first. This goes for charitable giving too.
It is so important for a young person to set up a budget when taking on their first job and many young people earning their first paycheck may feel like they have a lot of extra cash. However, with very little effort, that extra cash disappears quickly if they don't have a budget in place. A simple budget that itemizes their fixed costs every month - rent, utilities, food, gas, car payment, taxes - can help them understand how much extra money they will have for entertainment or other nonessentials.
Encourage your child to decide how much they are willing to spend on entertainment each month, and put that money in an envelope. Pay cash only and avoid using credit cards. When the money is gone, it's gone.
Young adults need and want to make their own decisions. But, a little guidance from Mom and Dad can go a long way. It may even be helpful to have them talk to your financial advisor who can make a few recommendations based on their stage of life.