As a 24-year-old public school teacher in New York, I support myself and fund grad school independently. I credit my financial responsibility to my parents’ guidance. Financial education in schools ranges in accessibility and quality, but parents of young adults can fill in the gaps. Parent financial modeling is directly associated with financial behaviors and financial satisfaction among emerging adults ages 18–30, according to a recent study.
Here are five ways to help your emerging adults find financial success:
1. Start with you
First, “look at what you do because that’s what kids see,” says Tom Alessi, certified fiduciary and president of the ARIES Foundation for Financial Education. “If I’m spending whatever I want, I can’t say, ‘Don’t do as I do, do as I say.’”
Sometimes parents don’t understand financial matters because their own parents did not teach them, says Tim Smith, a certified financial planner, founder of The Financial Dad podcast, and CEO and founder of Aurora Private Wealth, Inc. Fortunately, there are countless financial literacy resources online, including free YouTube content such as this video.
Ketti Rose, CEO and founder of Wealthy Femme Movement, went through this self-education process herself. She recommends Morgan Housel’s book The Psychology of Money for individuals who were raised without much money and who want to address any misconceptions they have. For podcast lovers, Bigger Pockets offers useful insights.
2. Open the conversation early
Discuss budgeting, taxes, credit and debt early on. Start by explaining how you pay living expenses before allocating money toward savings and discretionary spending.
Emphasize that saving is an investment in your future instead of presenting it as restrictive. To build saving habits, emerging adults can place a portion of their monthly earnings from their first part-time job in a brokerage account. “If they put away money early on, they develop a mindset of ‘you take care of yourself’ that serves them their whole life,” says Alessi. Once your kids are working, help them understand their tax deductions to further build their independence.
Seize daily teachable moments. Smith suggests, “When you use a credit card, explain that credit is in place of currency, but later you have to pay.” When your young adult gets a credit card, discuss credit limits, credit scores and paying statements in full to avoid debt.
Opening the conversation can be as simple as narrating your choices, says Jennifer Seitz, director of education at Greenlight. For example, if you decide against an impulse purchase, you can say, “I didn’t buy this today because we’re saving for our trip.”
Don’t be afraid to share your mistakes, says Alessi. You can explain, “I understand what you’re going through. Here’s how I dealt with it, or here’s what I got tripped up on in my 20s.” Being transparent about blunders like credit card debt can help your child understand how to navigate the consequences of financial decisions.
When discussing debt, use numbers to make the concept concrete. Clarify that a negative credit score doesn’t just mean a denied lease or car loan—it leads to higher interest rates and paying more over time. Seitz also suggests differentiating between credit card debt and debt used to fund goals, such as college loans or real estate, which appreciates in value over time.
3. Model healthy financial behaviors
Young adults learn healthy financial behavior by seeing it. When your credit card bill comes, show your child the bill and explain that you are paying the statement in full, says Smith. You can also discuss how your family is saving for big purchases. Tell your child, “We’re paying a deposit of $4,000 for a new car. We’ll borrow $25,000 from the bank and get the car for $29,000. Every month we pay the bank, including the interest.”
You can even show young adults your budget. In moderation, explain your monthly income, mortgage payment, car payments, credit card payments and savings.
Modeling saving toward long-term goals is great. If you’re saving money in a 529 account for college or in a 401(k), tell your child. Help them understand the tax advantages of these accounts and how you chose them after examining alternatives, Smith suggests.
Celebrate investing wins too. “Let your kids hear that you made money on the stock you invested in. Let them see money both as a tool to invest and a way to enjoy life,” Rose recommends.
4. Explain financial risk
To understand financial risk, emerging adults must be intentional with savings and investments and understand what they’re saving for. “If they’re using the money in the next 12 months, they shouldn’t invest in something volatile,” says Alessi. In this situation, a savings account or money market account that earns interest works. But if young adults don’t need their money for five or 10 years, they can accept more risk.
Introduce your kids to the S&P 500 and why investing in it could be smart. “You can show kids how to set up a regular ACH draft to their brokerage or Roth IRA account and even set it up to purchase shares of the S&P 500,” Smith says.
Rose has explained to her 9-year-old that buying a stock means owning a piece of a company, and index funds and ETFs are like baskets of multiple companies. She helps her kids understand that ETFs usually have fewer fees than management funds and that index funds help create a diversified portfolio without needing to manage much.
When her kids get money, she helps them consider if they need another pair of Nikes, for example, or if they want to invest in a company they care about. She uses the compound calculator on Investor.gov to show her kids how their money will grow if they invest it monthly. You can decide if similar tactics work for your family.
5. Gradually increase financial responsibility
Every family has different expectations and resources as children become financially independent. “The most important thing is to set expectations with advance notice,” Seitz says.
Before kids move out, help them map their living expenses, including student loan repayments and what their income will need to be. This transition from budgeting with discretionary spending to budgeting with bills is easier if young adults have been assuming financial responsibilities over time.
For example, if your child works in high school, some families collect rent. This rent may not match the market value, Seitz says, but it gets young adults used to paying bills. Plus, the money can be saved for their security deposit or first month’s rent.
For high school students, Greenlight offers a brokerage account where teens can propose trades that their parents can review. Setting up this account or establishing a similar system where you guide your children with early investments can prepare them to do it independently.
In college, your child may get their first credit card and begin paying for expenses like shopping and going out to eat, Smith says. Experts agree that a great way for emerging adults to increase their financial agency from there is by establishing a brokerage account and Roth IRA and managing monthly contributions themselves. Parents may gift their children the first $100 to deposit, but children should experience the process of creating an account.
Ultimately, this weaning process is situational, and young people today may encounter different challenges than you did at their age. However, you can still take concrete steps to support your child’s long-term financial success.
Photo by Dean Drobot/Shutterstock
