Many young adults are leaving home for the first time, yet remain ill-prepared to independently manage their personal finances. This is predictable considering that less than one-half of the states mandate a course in personal finance as a requirement for high school graduation.
The 2014 National Foundation for Credit Counseling® (NFCC) Financial Literacy Survey revealed that the majority of adults say they learned the most about personal finance from their parents, which is true whether mom and dad possess good or bad financial habits. Proving that parents may not be the best teachers of personal finance, more than four in 10 survey respondents, 41 percent, gave themselves a C, D or F on their grasp of personal finance. Therefore it should be no surprise that many young adults smart enough to get into college remain ignorant of even the most basic financial skills.
"Whether it's off to work or off to college, parents put a lot of time and money into preparing their child to leave home, but often neglect the basic life skills associated with personal finance. With just a few weeks until the young adult children will head out the door, the time is now for a crash course in personal finance," said Gail Cunningham, spokesperson for the NFCC.
The NFCC provides the following Personal Finance 101 checklist of basic knowledge everyone living on their own for the first time needs to possess in order to start off on the right financial foot.
· Start with budgeting - Learned early, the discipline to live within a budget is a skill that will pay benefits for a lifetime. Parents should be transparent with their child about how much money is available for expenses and jointly create a workable monthly budget. Once on their own, students should track their spending to know where their money goes and stay in control of spending. This can be accomplished by tracking on paper, using a budgeting computer program or a smartphone app. The method isn't important, but knowing how the money is being spent is.
· Understand basic banking. Even those who do not write many checks each month need to understand the importance of recording transactions in their check register and promptly balancing the bank statement. Along with checks, ATM withdrawals and debit card purchases should be recorded in the checkbook after each use, with a running balance tallied daily. Attempts to withdraw funds beyond the account balance could result in being declined at the point of sale unless other arrangements such as overdraft protection have been put in place. Since overdraft fees can quickly add up, it is best to keep track of the account balance and not exceed it.
· Respect credit. Credit matters now and it matters later. Young adults under the age of 21 cannot obtain a credit card unless they can prove ability to pay or have a co-signer. Nonetheless, many will have plastic in their wallets when they leave home. Studies show that a disturbing number of college graduates have both student loan debt and credit card debt which can prevent them from moving forward with their professional lives. However, young adults also have the opportunity to graduate with a positive credit file which could help them buy a car, rent an apartment, obtain insurance or land the job of their dreams. To have an unblemished credit report and a solid credit score, commit to paying each credit card bill in full and on time each month.
· Be financially organized - Keep all financial records, bills, and bank statements in one location. A file or accordion folder in a locked file cabinet is ideal. Since spare time may be hard to come by, this system allows quick access to what is needed when it's needed. Being financially organized ensures that bills are paid on time, late fees are avoided and the credit report and score are not damaged.