What to Teach Your New College Graduate About Money

Your child is finally getting ready to graduate college.  It is an exciting and scary time - they get to be on their own but that comes with many adult responsibilities that they have not had to worry about before. 

As parents we worry we have done all that we can do to ensure that they are ready.

Before sending them off on their own, make sure they have the right knowledge to take care of their own money and are ready to make those decisions they have never had to make.

Below are four topics that you should at least cover so they know it is important and they have some information to take them forward.

How Much to Spend on Rent

Graduate in cap and gown walking through portico
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Housing is typically your biggest expense and can quickly make you mess your budget up.  Yet this is hard to understand when you are just starting out, you have not had to pay the rent from your own income. 

Teach your child that ideally they should try and stay under 30% of their income for housing.  I personally recommend that this is on an after tax basis, since we don't really get to decide how our taxes are spent!

What Insurance Do They Need

Insurance is never a fun and exciting topic, and most new graduates don't see the value in spending money on insurance. 

This is one where you want to make sure they have at least the coverages that would impact their financial future the most.

I would consider the most important ones to be: health insurance, auto insurance, and renters insurance.

Medical bills are the number one reason for filing bankruptcy.  If your child's new job does not offer insurance, help them find a policy from one of the new exchanges.  Don't do the work for them, but teach them what the terms are and what they may or may not need.  Remember they have not had to deal with purchasing this before and there are many confusing terms.

Renters insurance is cheap and will cover them if something happens to their rental.  The insurance that the owner has covers the structure, renters insurance covers their stuff inside!  For a couple hundred a year they can not worry about replacing everything they own should something happen.

Taxes - Paying and Budgeting!

Taxes not only take a good sized chunk out of your paycheck, but the filing of your tax return can be confusing.  If your child has never had a job, run through what tax deductions come out when they get a pay check.  Make sure they understand that they will not get the full amount of their salary.

If they have had a job before, but you did their taxes for them, remind them that they have to file a tax return before April 15th of every year.

 For more on taxes for your dependent children.

Retirement Savings

If you have not had a chat about retirement savings yet, now is the time to do so.  The sooner your child starts saving, the less they will have to save in the long run.  Thus if you can convince them to start saving on day one of their job they will be further ahead!

For more on teaching your younger kids about retirement.