Insights


The Conversation Your Clients Should be Having with College-Age Children

Raising financially savvy young adults doesn’t happen overnight, but it’s never too early or too late to teach simple lessons.

Talking about money openly and honestly can counteract money taboos that may undermine good intentions.

These 5 tasks can teach young adults financial responsibility and help them achieve skills needed for a solid financial foundation.


Brie P. Williams
Head of Practice Management, State Street Global Advisors

The start of a new school year is an exciting (and challenging) time for your clients’ children in high school and college who are gaining (and testing) their new independence. With additional freedom comes added responsibility. Advisors can help clients prepare their young adult children for the responsibility of more independent financial decision-making. The goal: build self-discipline and self-sufficiency that will lead tohealthy saving and spending habits throughout their financial journey.

A lifelong process

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Raising financially savvy young adults doesn’t happen overnight. It starts years earlier, including the way parents model financial behaviors and how that influences children. Fortunately, it’s never too early—or too late—for clients to begin teaching simple lessons. That builds confidence, as children grow and achieve more financial skills needed to make increasingly difficult choices in life. For their parents, itadds peace of mind.

1. Know where the money goes: Start with budget basics

Developing a budget is a proactive approach to managing money. It focuses on the income they receive and the expenditures they make, to avoid running out of money before the end of the month. A budget can also give young adults the structureand reinforcement needed to save for big purchases. And it can help them develop the habit of setting aside emergency funds, which is crucial for when they become fully independent.

2. Learn to live within their means: Coach delayed gratification and realistic goal-setting

After setting the monthly budget, step two is taking a hard look at actual spending habits. With the benefit of hindsight, it’s easier to distinguish a want from a need. Parents should encourage their children to track their spending and make realistic changes to how they manage their cash flow based on their priorities. The focus should be on developing mindful money practices for everyday to move into financial health. 

3. Shoot for five stars: Show them how to build a solid credit score

Young adults need guidance in how to choose and use their first credit card wisely, and to understand the importance of maintaining a solid credit score. That includes checking each statement, to identify any inaccurate or fraudulent items and to gain better insight into their spending habits. Parents should emphasize the importance of paying off the balance monthly and illustrate the impact of compound interest over time. Credit scores can also come into play for shared living expenses among roommates, like utilities. Young adults should avoid putting their personal credit on the line for anyone else and understand that bills with their name on it are their responsibility, even if their roommate is negligent.

4. Be a student of the business: Explain how they can earn while they learn

Just as financial responsibility doesn’t happen overnight, becoming a smart investor also takes time—often with many life lessons along the way. One of the most important lessons for financial independence is to pay yourself first. Young adults who gain this experiential knowledge are on the path to becoming money smart and to understanding that they don’t need to be an expert investor to grow their wealth. Parents can provide money smart resource considerations—podcast, books, websites and more—and encourage their children to embrace the most important principles: to invest in themselves, to be in it for the long term, and to diversify their risk.

5. Take responsibility: Teach accountability to help them truly own their worth

Allowing young adults to make small money mistakes vs parents swooping in to save the day are important experiences to have earlier in life when the stakes are low. Parents will need coaching to control the urge to protect young adult children from experiencing the consequences of less than ideal financial decisions. Everyday tasks like managing their cash-flow carefully and maintaining a good credit history are stepping stones to being fully independent and responsible adults.

Advisors and clients should be consistent in underscoring the message that financial freedom is closely tied to confidence and a positive outlook on life; that doesn’t mean that money buys happiness, but that excessive debt leads to needless anxiety and limited opportunities. Lastly, talking about money in an open, honest and non-judgmental way will counteract traditional taboos associated with money that can undermine good intentions.

These suggestions can help teach the fundamentals of financial responsibility. The common ground here is the conversation about money and family values, to inspire young adults in becoming prudent stewards of wealth. Money shouldn’t be a taboo topic. Keeping the communication lines open, especially after children are living away from home, will help your clients continue to guide adult children in their financial life journey.