Making Cents: Real World Finance for your College Graduate
By: John P. Napolitano, CFP®, CPA, PFS, MST
As another college graduating class gets ready to enter the real world, please use this opportunity to give them the only formal lesson they didn’t get in college. That lesson is real world finance 101 and how to live fiscally responsibly and within your means.
While employment is up in general, there are still many new grads looking for work related to their newly minted degree. It is important to get started on the right foot, but that right foot may not be what they’d call their ideal job. Encourage them to do something productive; it is not a good idea for them to sit around idly until that perfect opportunity arrives for them. Ask your new grad to work somewhere, even if it is doing the same thing they did for last summer’s job. It may be just as important to eliminate career choices at age 22 as it is to find their first dream job. Even a new grad is more desirable to an employer when they display energy and resourcefulness while seeking a better opportunity.
Do not support them living above their means. While there may be an isolated circumstance where it makes sense, it would not be a good idea to subsidize a young impressionable new grad. You wouldn’t want your subsidy to send the message that living above your means is acceptable.
Regardless of how low their earnings may be, encourage them to start a regular savings program. This is a good habit that will be hard to break once they get used to savings. Furthermore, real life brings real surprises and costs that may not have existed while in school. In addition to new expenses such as rent and transportation, learning to build savings as a cushion against the unknown is important at any age.
If they have access to benefits and a retirement plan, use them. While your youngster may not need health insurance if they can be covered under your health plan, they should have disability income protection and possibly life insurance if they’ve got student loans or other obligations. Regarding the retirement plan, suggest they consider contributing to a Roth 401K. They will not get a tax deduction for the contribution, but in 40 years when they want to draw down those assets, they’ll be thanking you for the lack of income taxes levied on those Roth distributions.
A will and health care directives are also real world necessities for many new grads. The grad without assets may not need a will for the assets, but if there are any children or a start-up business, anyone over age 18 should have a will. The health care directives may be more significant. At age 18, mom or dad’s ability to make health care decisions on behalf of the adult child can be achieved through this document.
John P. Napolitano CFP®, CPA is CEO of U. S. Wealth Management in Braintree, MA. Visit JohnPNapolitano on LinkedIn or uswealthnapolitano.com. The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. John Napolitano is a registered principal with and securities offered through LPL Financial, Member FINRA/SIPC. Investment advice offered through US Financial Advisors, a Registered Investment Advisor. US Financial Advisors and US Wealth Management are separate entities from LPL Financial. He can be reached at 781-849-9200.