It’s going to be a whole new financial world for college and high school graduates. Many of them will confront a number of money issues for the first time in their lives.
So I’d like to offer some advice that you can use to help your graduate navigate this new fiscal terrain. Here are MY top tips:
▪ Commiserate with them about the overwhelming amount of information they'll get about planning for retirement.
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College graduates entering the workforce will be bombarded with financial information. If their new job offers a retirement plan, such as a 401(k) or 403(b), they'll likely get a packet that will include choices and terms — small-cap, mid-cap, large-cap, growth index, bonds and Treasuries — that will have them pining for final exams.
Offer to help go through the information with them. If you don’t feel equipped to offer advice, as a graduation gift hire a fee-only financial planner to help explain what’s in his or her company’s plan and map out an investment strategy.
Or encourage them to use the financial advising services many company plans offer. If there is a fee for some extra guidance, make that a graduation gift.
▪ Don’t add to the pressure for your graduate to buy a home as soon as possible.
I’m a huge advocate of homeownership. But too many people early in their work years feel pressure to buy a home.
They will start to hear advice about what a good investment it will be. That makes them too anxious, and they may jump into this decision sooner than they should.
Tell them renting is OK until they are better off financially with emergency funds tucked away and until all or a significant amount of any debt, especially student loans, are paid off. I know it may take years. But homeownership is right when it’s truly affordable and not a day sooner.
▪ Offer help in gathering all the information about their student loans.
You may need to be a pest, but bug them when it comes to making sure they know how much they owe. I have heard from so many borrowers who find out years later they had forgotten about a student loan and were faced with a lot more interest, plus penalties.
Start the search on nslds.ed.gov, which is the site for the Department of Education’s National Student Loan Data System. The database will list federal loans, so make sure graduates check with their college for information about any private loans. They also can track down loans by getting their credit reports at annualcreditreport.com. Have them pull their file from each of the three agencies in case a lender doesn’t report to all of them.
HIGH SCHOOL GRADS
▪ Discourage them from getting a credit card.
Although it’s harder for them to get credit, they still can. Credit card companies want to catch them early so they become devoted customers.
But they have time to build a good credit history. While they are in college or starting out on their own, it’s important to make sure they know how to manage their lives by living in their means without the crutch of a credit card.Always say no until you see a budget.
▪ Make them count the cost of every move that involves a financial decision, especially one you have to sign off on. Our daughter, who will be a junior this fall at the University of Maryland, wanted to move to off-campus housing. She initially tried to make her case by saying it would be cheaper than living on campus. We asked her a series of questions that often got the response, “I don’t know.” Or she tried to get away with estimates. Until we saw an actual budget — hard numbers — we said, “Nope. Not going to happen.” Many conversations later, she’s moving into the apartment, and she’s got a good handle on the costs.
Help them get into the habit of doing a detailed cost-benefit analysis for their choices.
▪ Always speak ill of debt.
Sure they’ll borrow if they haven’t already for a car or student loans, and eventually a home. But they don’t have to like it.
And if they don’t like it, they will want to get rid of it as soon as possible.
Do your best to make them a hater of debt long before they graduate from college. Then the other list comes in handy.
Hear Michelle Singletary’s personal finance reports on www.npr.org. Readers may write to her c/o The Washington Post, 1150 15th St., NW, Washington, DC 20081.