Mar 16, 2023

Financial Well-being: 12 Tips for Young Adults & Their Parents

Mar 16, 2023
Pat Phillips — CFP®
Wealth Architect
Clients who are parenting young adults (teens and early twenties) often ask me what their children can be doing now to set themselves up for financial success in the near- and long-term. I share with them the below 12 tips and accompanying resources. I encourage young adults to consider taking each step in this list to improve their financial preparedness and general sense of well-being. It’s never too early to start building a financial blueprint and working toward one’s future dreams!

1. Put in place an advance health care directive (AHCD) when you reach the age of majority

For any adult experiencing a medical crisis or even non-critical need, not having an advance health care directive in place could cause stressful, nightmarish issues for the patient and their loved ones. Due to the HIPAA Privacy Rule, even a parent of a young adult may have difficulty accessing information from a health provider without an existing directive. In some cases, a young adult may not want a parent or past guardian to have access to their health information or make decisions on their behalf during a medical emergency. 


2. Take the latest measures to protect yourself and your child from identity theft

Identity theft is up 70% since 2020, per the National Council on Identity Theft Protection. It’s important to teach children and young adults how to protect themselves from identity theft and, if you’re a parent, you can best guide them when you understand it yourself. One common best practice is to freeze your credit and that of your child. (Sadly, child identity theft does happen.)


3. Keep track of your credit score and work toward improving it as much as possible

Your credit score is an essential financial building block. It impacts your likelihood to qualify to rent an apartment, open a credit card or take out a loan to buy a car, home or to start a business. 


 4. Responsibly obtain, use and manage a credit card to build good credit

If managed properly, credit cards are a valuable tool to improve your credit score. If mismanaged, they can cause serious damage to your credit score and have a debilitating effect on your ability to rent or buy a home and achieve other important life goals. Establishing good spending habits and card repayment practices early will aid you in building a strong credit profile.


5. Open a savings account at a credit union or bank

Young adults will benefit from having a savings account and learning to manage it responsibly. When opening a savings account, ask questions. Find out what your options are, what to expect and what fees you’ll want to avoid to reduce or eliminate unnecessary costs. If you open an online savings account, consider linking it to your checking account so you can potentially earn a better interest rate.


6. Know your income and expenses

The foundation to budgeting and setting long-term financial goals begins with knowing your income (particularly your take-home pay) and expenses. There are a number of programs and resources available to help you find an expense-tracking system that works for you.


7. Establish an emergency fund

Before you begin to invest for long-term goals, it’s typically best to establish an emergency reserve or “rainy day” fund. An unplanned medical bill or vehicle repair hopefully shouldn’t derail your financial plans for the future.


8. Understand debt and manage any existing debt

Debt, such as student loans and eventually a home mortgage, can be an excellent instrument to invest in yourself and your financial future. However, when debt is mismanaged or balloons out of control, it can have crippling and long-term effects.

It’s important to take the time to understand debt management best practices, including types of debt and interest rates. 


9. Open a brokerage account and/or retirement account (e.g., Roth IRA, IRA, etc.)

As a young adult, opening a brokerage and/or retirement account with a reputable institution can help set you up for financial success later in life. Such an account can help you save and invest responsibly, so that your wealth grows over time. Investments might include stocks, funds, bonds and attractive interest rates on cash using money market funds. 

Most custodians allow individuals to open brokerage and retirement accounts at age 18. With children under 18, parents can typically open an account on their behalf (such as College Savings 529s*, UTMAs and Roth IRA UTMAs).


*As of 2023, people will soon be able to use a 529 to fund a Roth IRA:

10. Set beneficiary designations on your bank, brokerage and retirement accounts (e.g., IRAs, 401ks, 403bs)

Beneficiary designations determine which of your accounts and assets will be disbursed to which person(s) and/or charitable organization(s) if you were to die. It’s not a particularly pleasant situation to think about, and it may seem very far-removed as a teenager or young adult, but it’s still advisable to prepare for it anyway. 


11. If employed, enroll in an employer sponsored 401(k), 403(b) or retirement plan. Take advantage of any employer perks offered, such as matching contributions.

Start saving early and often. Even if it is a modest amount of savings to start, if invested appropriately for the long-term, it can still grow considerably and set you on a good course. To fuel that growth, increase the amount you put into savings over time when life events warrant it, such as when you receive a raise. To learn more, do some research and then speak with your employer.


12. Learn about disciplined, long-term investing and saving

Though some investors struggle to stick to them, abiding by a few key foundational principles will likely increase your chance of successful, long-term investments and achieving those future goals. Each person’s financial situation differs, but a good rule of thumb for someone in their 20s is to target a savings rate of 15% of pay–including employer matching contributions–toward retirement.


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