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Helping Families Guide their New Grads to Financial Success

This spring, millions of college graduates will exit the stage with diplomas in hand to embark on careers; and for some, financial independence. But financial literacy is a subject that receives too little attention, especially from young adults. Here are some tips and good information for families with new grads.

Trends affecting how graduates prepare for the real world

There’s something different about this younger generation. It’s what every older generation says about the last. Only this time, it’s true.

Graduates entering the workforce this year represent the last of the Millennials (those born 1980-1995), a group some 80 million strong and a number that eclipses every other generation in America.¹ The group is well studied (and publicized) for its tendency toward social responsibility, commitment to values, and emphasis on flexibility, life experiences, and individualism. Less talked about are Millennials’ financial behaviors and attitudes toward investing. And herein lies the challenge for many of our clients with young adult children—and for our business.

According to Deloitte, many Millennials have an innate distrust of financial institutions (and money managers). What’s more, they tend to be risk averse, with less than 30% of their wealth in the stock market.²

Meanwhile, Americans are living longer, with an average of 20 healthy years after age 60, according to the MIT AgeLab. The looming threat to Social Security from prolonged lifespans and diminished reserves would suggest new grads should exercise their time advantage and get into the market. But how do you urge a 20-something to put aside income for an outcome as far off as retirement? After all, only 18% of 18- to 25-year-olds invest in the stock market.³

Lack of financial preparedness coupled with an increasingly strained safety net is one reason to encourage new grads to get into the market sooner than later. Another reason is because work itself is changing. According to one estimate, the so-called gig economy makes up 34% of the workforce and will increase to 43% by 2020.⁴ As the 1099 continues to outpace the W-2, future generations will likely need to be even more proactive about carving out their own financial stability.

How are parents responding to all this? Carrie Schwab-Pomerantz, president of Charles Schwab Foundation and personal finance expert, expresses her concern, “As a proud mother of three Millennials, I want to do my best to help them—and their peers—become fulfilled, independent, and productive adults. And I believe a big part of that is introducing them to prudent money management and investing.” Learning basic financial fundamentals can go a long way—even for high-net-worth families whose children will one day need to manage an inheritance.

So the question becomes, How do we, at Acumen Wealth Advisors, help this younger generation find stronger financial footing?

Graduation offers a timely opportunity for us to help families reach their grads to communicate the importance of building a solid financial foundation and good savings and investing habits that can last a lifetime.  Below are some ideas to get started.

Start the conversation

Consider creating a “resource kit” to talk to your new grads about finances. Topics can include:

• How to broach the subject
• Setting up auto pay for regular bills
• Record keeping (like tracking apartment deposits, tax receipts, etc.)
• Helpful apps and online tools
• Building good credit (creditkarma.com)
• Budgeting best practices

Download Schwab’s budget checklist for inspiration and develop your own list of personal finance tips.

4 gift ideas to help new grads become future investors

A 2017 study showed that Americans planned to spend upwards of $5.6 billion on graduation gifts—more than half of it being cash.⁵ Perhaps, though, what the next generation really needs is guidance on becoming self-reliant, financially responsible adults.

1. Match savings contributions. Opening a savings account can open the door to developing a savings habit. Parents can make the initial deposit and match a portion of their graduate’s contributions. (Note: In 2018, you can give up to $15,000 per recipient without incurring the gift tax, $30,000 if you’re giving as a couple).
2. Fund (or match contributions to) an IRA. Opening a tax-advantaged Individual Retirement Account (IRA) could be the right move if the graduate is freelancing or ineligible for a 401(k) through their employer. Roth IRAs, funded with after-tax dollars, offer tax-deferred growth and tax-free withdrawals, and are a practical option for those with smaller incomes.
3. Give stocks with youth appeal. Gifting stocks that appeal to young graduates is an effective way to pique their interest in investing. Think about what appeals to them: biotech, technology, or socially responsible investments. Be sure to include the grads in making the decision.
4. Consider gifting appreciated stocks. Gifting appreciated stocks helps build the graduate’s assets while reducing a parent’s capital gains. This could also be a good time to start a conversation about generational tax planning.

Conclusion

We understand college graduation is an important life event.  As trusted wealth advisors, we are happy to help clients and graduates in ways benefiting the entire family.  We encourage you to reach out to our team at Acumen Wealth Advisors to see how we can help your family.

Sources:

1. Anthony Cilluffo and D’Vera Cohn, “10 Demographic Trends Shaping the U.S. and the World in 2017,” Pew Research Center, April 27, 2017, http://www.pewresearch.org/fact-tank/2017/04/27/10-demographic-trends-shaping-the-u-s-and-the-world-in-2017.
2. Daniel Kobler, Felix Hauber and Benjamin Ernst, “Millennials and Wealth Management: Trends and Challenges of the New Clientele,” Inside, June 2015, https://www2.deloitte.com/lu/en/pages/financial-services/articles/millennials-wealth-management.html.
3. “Only 1 in 3 Millennials Are Investing in the Stock Market,” Bankrate, July 6, 2016, https://www.bankrate.com/pdfs/pr/20160706-July-Money-Pulse.pdf.
4. Patrick Gillespie, “Intuit: Gig Economy Is 34% of US Workforce,” CNN Money, May 24, 2017,  http://money.cnn.com/2017/05/24/news/economy/gig-economy-intuit/index.html.
5. “Graduation Spending to Reach Record-High $5.6 Billion,” National Retail Federation, May 17, 2017,
   https://nrf.com/media/press-releases/graduation-spending-reach-record-high-56-billion
6. Alan Moore, “Financial Planning Isn’t Just for Boomers Anymore,” (presentation, Schwab IMPACT® 2015, Boston, MA, November 11, 2015.)
7. Kenneth Kiesnoski, “How Financial Advisors Fail to Plan for Their Own Future,” CNBC, December 5, 2017, https://www.cnbc.com/2017/12/05/how-financial-advisors-fail-to-plan-for-their-own-future.html.