5 financial lessons you should impart to your adult children
Ultimately, we want our kids to live long, happy, healthy lives.
Financial security is central to achieving this dream. So it may be time to have a chat about matters of money and ensure they are well set up for a prosperous future!
While there are many important things to instil in future generations, the five below are perhaps the most crucial current-day issues for your adult children to master.
- Avoid BNPL
Buy now, pay later (BNPL) schemes have taken off in popularity in recent years, allowing shoppers to purchase and use goods straight away yet pay for them over time in instalments. Sound too good to be true? Indeed.
Most schemes attach hefty penalties and interest for missed or late repayments – much the same as credit cards. The debt quickly balloons, and can become unsustainable.
The best approach to instil in your children is to always live within their means.
- Avoid sexually transmitted debt
Joint finances, loans, credit cards, utilities, subscriptions, vehicles, businesses, property… all of these and more are shared liabilities.
Even if a partner is the one who racks up the debts, your child is equally responsible for repaying them. This is what I call sexually transmitted debt.
It could be inadvertent (such as having a partner who, despite their best intentions, is simply bad with money); hidden (like gambling addiction), deliberate (financial abuse), lose their job, have an accident, get seriously unwell.
Either way, sexually transmitted debts can create long-term and even life-long problems, regardless of whether the relationship that created those debts survives: repayment struggles, credit constraints, bankruptcy, legal woes.
When it comes to money, your children (and yourself) need to think with their head, not their heart.
- Start investing
The number one thing financial advisers hear most is “I wish I started years ago”.
Investments typically grow over time. The more time you allow, the bigger their value.
Younger adults have big demands on their hip pocket. However, even starting with small investments allows compound growth to work its magic.
Plus, given the housing affordability constraints facing younger generations, investments that can be sold or leveraged could better help them onto the housing ladder in future.
Superannuation is another investment to pay attention to from a young age: managing investments, ensuring they are in a cost-effective fund, and avoiding mistakes – like consolidating funds without getting advice, which can inadvertently see them consolidate into a poorer performing fund or cancel attached insurances that had preferential terms.
- Get a will
While young people may feel invincible, untimely deaths or disablement claims sadly can and do happen. And often unexpectedly: land transport accidents and accidental poisoning, together with suicide, make up the biggest causes of death for under 44s in Australia.
Not having a will and a nominated executor complicates matters for grieving family and can delay all-important access to finances. How would your child’s partner and kids (if they have them) survive if their super, insurances and other payouts are delayed through probate?
Remember to point out that superannuation (and other structures like companies and trusts) are treated separately from a will, and so need beneficiaries nominated within them.
Younger people are also less likely to have discussed their final wishes with loved ones – funeral arrangements, burial vs cremation, organ donation, inheritances etc. This is where a separate statement of wishes can be useful.
- Get insured
Insurances – save perhaps vehicle and house/contents – are rarely on the minds of younger people. But they should be.
That is because many insurances are cheaper and offer better coverage when people are younger and free of any health complications. That includes private health, life and permanent disability, and income protection cover.
Other insurances, like asset protection, can also be more lucrative to lock-in early. Just think about how the Ts and Cs on insurances have changed (become more restrictive) since you were their age!
So encourage your adult children to scrutinise their insurance coverage. (And keep them away from drugs and smoking to stay healthier for longer!)
Helen Baker is a licensed Australian financial adviser and author of the new book, On Your Own Two Feet: The Essential Guide to Financial Independence for all Women (Ventura Press, $32.99). Helen is among the 1% of financial planners who hold a master’s degree in the field. Proceeds from book sales are donated to charities supporting disadvantaged women and children. Find out more at www.onyourowntwofeet.com.au
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