As you approach your retirement, you may find that your children are starting or are well into their careers. They might be in a position to start saving and planning for their future financial security. But keep in mind that they might not necessarily have the financial know-how that you do! Here are some big mistakes younger people can make with their money that may impact you:
- Having No Emergency Fund
Young folks don’t always think about the big impact that an unexpected expense can have on their financial life. You have a lot of experience, and you know to expect the unexpected. But your kids may not know the value of keeping a healthy savings amount in case of an emergency. If they’re unprepared, you may be asked to foot the bill!
- Not Having Insurance
Related to the last mistake, young people often avoid insurance because they think that they won’t need it. This might be the right strategy for some people, but it’s also important to keep in mind that large medical bills, or bills from auto accidents, can pile up if insurance isn’t there to diffuse the costs.
- Not Paying Down High-Interest Debt
Your kids might not be aware of how high-interest loans and credit cards really work. They may not be aware that making only minimum payments on high-interest debt is (in a way) costing them money.[1] Consider talking with your kids about how high-interest debt actually works to help them avoid this situation so that you aren’t stuck paying for it later.
- Spending Too Much on Their House
It’s always exciting when your kids buy a house. It’s a new chapter for them and a huge milestone in life. But sometimes first-time home buyers don’t totally understand the financial aspects of owning a home. Sometimes they’ll buy something that might be more than they can really afford, or they don’t predict the full extent of repair costs. They may also need help knowing what to look for in a home and how to avoid those homes that seem like sweet deals but actually have hidden problems. You’re in a position to explain to them the hidden costs of home ownership, such as repairs and maintenance, that they may not have considered. Many parents and grandparents might help cover the cost of a downpayment, but consider taking it a step further and being a little more involved in the purchasing process to make sure they don’t make costly mistakes.
- Not Saving for Retirement
As you approach retirement yourself, you know the value of composing a comprehensive retirement strategy. But that kind of long-term financial planning may not be something that your kids fully value. But trying to explain it all in one conversation might be difficult. First, make sure they know what a retirement account can do for their future and see if they can construct a savings plan to get them on the right path.
One last suggestion: If you are concerned about how your adult child is handling their money, consider discussing these concerns with a financial professional, even bringing your kids and family in to get the conversation started. There are a lot more than 5 mistakes young people can make when it comes to managing their finances, and they can end up costing you. A financial professional can help you and your family construct a plan to avoid some of the big pitfalls in money management, so reach out to us today to get started.
