When it comes to making the transition from college life to life in the real world, the struggle is real for many young adults.
More than half of millennials are unsatisfied with their financial situation and feel woefully unprepared to be financially successful adults. Among Generation Z, the oldest of whom are poised to graduate from college, money is already proving to be a major source of stress.
As your children grow into young adults, their learning how to adult properly when it comes to money is crucial to creating long-term financial health. These five financial #adulting lessons are among the most important ones young people need to learn as they set out on their own.
1. Real-World Living Demands a Real-World Budget
When college ends and a career begins, young adults can't afford to be clueless about what to do with their paychecks.
"If you want to do this whole adulting thing well, you need to get on a budget," says Anthony ONeal, author of The Graduate Survival Guide: 5 Mistakes You Can't Afford to Make In College. ONeal says having a budget puts you in control of your money. When you don't have one, you spend a lot of time wondering where your money went.
Young adults can end up with sticker shock when they have to pay for things themselves that their parents may have helped with in college. But spending their own money is likely to be the only way they'll really learn what things cost and how much time is actually spent earning enough to pay for them. This experience can help young adults to shape a more realistic budget for themselves.
2. Forget About FOMO
Fear of missing out can spur young adults to make decisions with their money and their time that they otherwise wouldn't, based on what their friends are doing. An estimated 40% of millennials admitted that they overspend to keep up with their peers.
For young adults, heading into the real world may mean rethinking who they include in their circle of friends. Spending time with friends who have similar financial goals and beliefs can help foster a healthier relationship with money. And there may be fewer opportunities to give in to FOMO spending temptation.
3. Don't Assume Debt Should Be the Norm
For many grads, earning a college or graduate degree means taking on student loan debt. Having one type of debt can make having another kind of debt, such as credit cards, seem normal. This can trigger a cycle of debt that can make adulting more difficult.
"Until graduation, the idea behind paying back student loans is mostly handled by the ostrich in the sand technique–don't worry about it until you have to," says Ben Watson, a certified public accountant and founder of DollarSprout. "But, six months after graduation, when the first payment comes due, many young adults have already slipped further into debt from the costs that came from moving, furnishing a new apartment, attending multiple weddings, and experiencing the true cost of living for likely the first time," he says.
Watson says young adults can avoid this kind of scenario by being faithful to their budgets and focusing on developing good financial habits. Once they've mastered living within their means, there'll be time to rethink where credit cards or loans fit into their financial picture.
4. Treat Credit Like a Tool
While using credit without a plan can lead to debt, credit itself is a tool whose value is not to be discounted.
Good credit is important for many financial decisions, such as getting a car loan, buying a home, or getting a loan to start a business. Riley Adams, a certified public account and founder of Young and the Invested, says young adults shouldn't delay in establishing a good credit history.
Paying student loans, rent, and other bills on time is the most effective way to build credit after college without requiring young adults to take on debt. Opening a checking account and savings account, although it won't affect credit scores directly, also can help to foster sound financial habits–like saving regularly–that can improve credit health. "Good credit is a gateway to prosperity," Adams says.
5. Flexibility Matters When Treading the Career Path
For many young adults, the job they begin their career with won't be the one they retire with. Knowing how to adapt and evolve in the workforce is critical.
“So many people don't know how to be flexible in their career, so, when they inevitably hit roadblocks, they aren't able to effectively change direction.”
- Melissa McClung
Professional Career Advisor and Owner of LBD Careers
This can put young adults behind the eight ball financially if they're not able to work up the career ladder and grow their income.
McClung says young adults shouldn't mistake having a job for having job security. Throughout their careers, they should be continuously investing in things that will make them successful, such as learning new skills. "Get the help you need when you need it and keep your finger on the pulse of the job market as a whole," she says.
Make Adulting Easier With the Right Financial Know-How
Learning how to manage money for the first time as an independent adult can be intimidating, but it's an essential step for young adults when heading out into the real world. Taking the time to educate themselves, absorb these five money lessons, and put them to work can make #adulting something to look forward to–rather than to fear.
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