Many of us learn the most important financial lessons when it’s too late. This can largely be due to the fact that we’ve not been taught about how to manage our money or are aware of what our options are. Personal finance lessons have not yet become a required subject in education. Therefore, it is important parents teach their young adult children financial lessons before they leave the family home.
First-time buyers will need a salary over £64k to buy their first home in 2020, while average graduates leave university with debts of £44k. Contrast this with an average UK salary of £27,600, and the fact that earnings have dropped in real terms, and it gives us insight into the worrying financial times facing Britain’s young adults.
The reality is that young adults today are facing a financial uphill battle that makes previous generation’s financial woes look like mole hills to their mountains. Equipping a young adult with the financial savvy and skills they need to flourish is more essential than ever.
Financial Lessons for Young Adults
There are some key financial pearls of wisdom which you can be pass on to the next generation, whether it is a son or daughter, a niece or nephew or a grandchild:
- Basic budgeting: While the Citizenship element of the UK National Curriculum covers some money management, the basics, such as budgeting are usually the best places to start. This can include helping them to understand the fundamentals of money in and out, tax, debt, outgoings, and more. This is also a great opportunity to show them how to set up and manage their own bank account.
- Invest sooner rather than later: In danger of coming across as preaching, investing earlier in life is important, even though they hope to be earning more as they get older. It’s basic maths, the sooner you start investing, the greater the benefits. It’s all about investment growth. Start small with savings goals, and grow from here.
- Rainy days and the future: While some young adults can rely on the bank of Mum and Dad, it’s an important lesson to learn that saving for rainy days is a great habit to pick up.
- Think about the long-term with your career: It’s enticing to take the best paying job when you’re saddled with student debt, and keen to maximise the money to burn. However, careers should be thought of realistically concerning future earning potential too. Be realistic about what someone needs to earn to afford certain living standards.
- Understand the most common financial pitfalls: When you’ve been managing your finances for decades, it’s easy to forget the myriad of simple tasks you complete day-in day-out to avoid common financial pitfalls. Pointing out the common mistakes, such as missing bill reminders, or being charged overdraft interest, or interest on credit cards, all need to be shared. Banking Refunds carried out a poll and discovered the UKs top financial bad habits, make sure your child is aware of them, you can also discover how to fix them here.
- Think outside the box: Some young people quickly and naturally realise that if they want spending power they need to earn it. These are youth who had a paper round, walked a neighbour’s dog, babysat for parent’s friends, or had a Saturday job. However, earning money doesn’t have to be a pursuit down one single avenue. Consider selling unwanted clothes and items on eBay, setting up an online business or carrying out freelance work.
How Do You Teach Young Adults Financial Lessons?
Of course, it’s one thing knowing what you should teach your young adult about financial matters; it’s another being able to do so successfully. You’re not dealing with a five-year-old who, if they don’t do what you want, you can simply coerce them through different parenting strategies. You’re going to have to be savvier.
There are three core elements which you can implement from the mid-teen years through into early adulthood:
- Give responsibility
- Show an example
- Help, guidance, and practical solutions
Everyone learns best when given a chance to make their own mistakes, and to try something in practice. Learning about finances is no different. This means giving a young person the responsibility to try a few things for themselves and see how it works. Start small with allowances as teens, and allow them to learn through natural consequences. Enable them to learn the value of money, in practice, as well as the fact that contribution-in equals payment out.
Setting an example is two-fold: Your actions regarding your own money and your responses regarding theirs. If they see you blow your last £30 on a takeaway rather than pay a bill, they will learn the wrong lesson. Let them watch you saving in action. Similarly, if they spend all of their lunch money on clothes and have you hand over more, they are more likely to fail to realise the consequences. It’s much better for young adults to learn these lessons when their young when the amounts and effects are small, than when they are older, and the same action gets them into debt.
Finally, you help and guide where you can. It’s not fair to say ‘manage your monthly allowance’ without giving them the tools to do so. Therefore, show them how they can keep track of their spending on their mobile phone. We’ve listed 10 apps that help you to save money.
Show them how to pay a bill or make a bank transfer. Show them how to plan savings and set goals. Most importantly, talk. Keep the lines of communication open.