How to have a financial conversation with teens and young adults

For parents, the past year has brought unexpected changes to household budgets and upended many daily routines. If you have older children, this can be an ideal opportunity to talk about the importance of being prepared and having a plan when it comes to finances. From reviewing money management steps, to answering their questions and listening to them talk about their future goals, having financial conversations now can help prepare your kids for long-term financial success.

Set the tone for positive and productive money talks by having true two-way conversations rather than lecturing. It can be helpful to set aside uninterrupted time when you’re both calm. Then focus on the areas below.

Start by offering reassurance.

The economy may leave older kids feeling worried about their parents’ finances as well as their own financial future. While they may look to you for guidance, they may also feel uneasy bringing up the subject of money and asking questions like: “Will my parents lose their jobs or lose the house?” “Will I be able to afford college or rent?” Reassure them that while there may be temporary impacts to the family budget, your household has taken steps to prepare for the unexpected and is currently taking action now to keep the family’s finances on track.

For example, if you’ve experienced a loss of income, explain how you’re adjusting — perhaps by trimming unnecessary expenses to ensure that essential bills like the mortgage and utilities are paid on time. If your household is spending less on dining out and entertainment due to at-home restrictions, explain what you’re doing with those funds, such as paying down debt or increasing your emergency fund.

Emphasize the importance of being prepared.

College students and recent graduates, in particular, may feel unsure about their job prospects and managing their financial future right now. Encourage them to take steps sooner, rather than later, so they’re better prepared during both strong and challenging economic times. These can include areas like starting an emergency fund, prioritizing essential versus non-essential spending, following a budget and saving for future goals.

Set an example by sharing specific steps your household is taking. For instance, maybe you’re putting money saved from not taking a vacation into a savings account because job stability is uncertain right now and you want to have a financial safety net.

Share your own financial stories.

As you talk about money management with your teen and young adult kids, be honest about your own experiences when you were their age. Share stories about your money missteps and successes. Did you regret using a high interest credit card to pay for a college spring break trip? Do you wish you had started saving sooner for retirement? Or perhaps you’re proud that you were able to pay for an unexpected car repair because you had enough savings in your emergency fund.

Encourage them to manage their own finances.

Help your kids build a strong financial foundation by reviewing and talking about the areas below. As you discuss each topic, encourage your kids to ask questions and direct them to helpful resources if you don’t have all the answers.

• Budgeting, including how to create a budget based on income and expenses. Explain that rather than being restrictive, a budget acts as a road map that shows where your money is going. After paying essentials and recurring expenses, a budget helps you find money for other priorities, like entertainment, more spending money, saving for goals and paying down debt.

  It’s also a good idea to help kids understand initial and ongoing expenses related to a purchase. For example, if your high schooler is planning to buy a car, he or she will need to budget for recurring costs like insurance, gas and maintenance.

• Saving for short-term goals, like a cell phone or new laptop, and long-term goals, like a car, graduate school or preparing to move into a home of their own. Show kids how getting into the habit of paying themselves first, whenever they get a paycheck, can help them reach their savings goals faster. Explain the benefits of participating in an employer retirement program and contributing enough to take advantage of a company match, if available.

• Managing debt and building credit. Encourage smart credit use, like using credit cards in moderation and paying the balance each month to help build a strong credit history. If student loan debt is making it difficult to keep up with essential bills, encourage them to look into forbearance, forgiveness or other options to help them move forward.

• Revising plans like paying for college when financial circumstances shift. Current impacts on family finances mean that high schoolers may need to reconsider higher education options. That may mean postponing college or graduate school for a semester to save money, or attending community college or a state school versus an out-of-state one. Or it could mean putting more effort into actively researching student loan options and scholarships. Be open about how much you can contribute and how much kids will be expected to contribute toward their education.

Keep talking and moving forward.

A financial conversation is more than a one-time event. Continuing to have open and transparent money talks can keep the lines of communication open as your teen and young adult children move forward toward financial independence. For more information and tips about saving, budgeting and managing your money, contact us. We’re here to help.

Also see:

• Preparing for the unexpected: How you can protect yourself and your finances.
• Budgeting basics you may not learn in school.