By David Munn, CFP
Every parent wants to see their children be successful as they move into adulthood–to steward well the abilities, resources and opportunities they have been given. Yet all too often the transition from dependence to independence leads to mistakes that have long-lasting consequences and inhibit success, especially in the area of finances.
Understanding these common blunders can help parents prepare their loved ones and empower emerging adults to sidestep financial missteps and build a strong foundation for their future.
The first major financial mistake is being financially illiterate. An AICPA survey revealed that only 24% of young adult respondents demonstrate basic financial literacy. Lack of understanding around concepts such as credit, loans, and retirement planning often leads to uninformed decisions that could prove detrimental in the long run.
Secondly, many young people succumb to the lure of instant gratification—prioritizing immediate pleasures over long-term financial stability. This tendency often manifests in impulse buying or accumulating unnecessary debts. The 'buy now, pay later' culture encourages each of us to live beyond our means, which results in a continuous cycle of debt repayment via credit cards, vehicle loans, cell phones, and other high interest loans that not only create stress and continual crises, but also inhibit the ability to build savings and wealth.
Habits such as budgeting and investing are often neglected during early adulthood—a third notable financial mistake. Consistently tracking income and expenses fosters financial discipline and allows young adults to prioritize what is most important to them, both in the short and long-term. Similarly, beginning to invest at a young age taps into the power of compound interest, optimizing the growth of wealth over time that will pay major future dividends (pun intended).
Carrying inadequate or no life insurance when starting a family is a fourth major financial mistake. Many view insurance as an unnecessary expense instead of a safety net against unforeseen tragedy. In most cases, sufficient insurance can be obtained very inexpensively, and can provide the peace of mind that financial needs will be met if a parent dies prematurely.
Finally, many young adults fail to save for emergencies or irregular expenses. Vehicle repairs and medical expenses may not be predictable, but they should be expected. Building the discipline to prioritize saving will not only help avoid financial disasters, but also develop habits that will lead to financial success as income and resources increase.
Parents and/or grandparents have an important role in preparing young adults for success and helping them get started on the right foot. In some cases, the parents themselves may recognize they have their own knowledge gaps that should be addressed so they can set a good example and be better equipped to mentor the younger generations.
This material is intended to be educational in nature, and not as a recommendation of any particular strategy, approach, product or concept for any particular advisor or client. These materials are not intended as any form of substitute for individualized investment advice. The discussion is general in nature, and therefore not intended to recommend or endorse any asset class, security, or technical aspect of any security for the purpose of allowing a reader to use the approach on their own. Before participating in any investment program or making any investment, clients as well as all other readers are encouraged to consult with their own professional advisers, including investment advisers and tax advisors. Munn Wealth Management, LLC, is registered as an investment adviser (RIA) with the United States Securities and Exchange Commission. Registration as an investment adviser does not imply any certain degree of skill or training. 1323GQV