Graduation season has come and gone, and while we're still celebrating our accomplished kids, the real work starts now. Parents can get a bit emotional sending our children off into the world. After all, there are a lot of responsibilities that come with being an adult, such as learning to deal with finances.
Your child may already know how to budget, and might understand the basics, but there are a lot more considerations to think about than ever before, especially if they've been under your health care plan.
If you can drop a little financial wisdom before they leave the homestead, it can pay huge dividends later in life. Here are a few suggestions on what to teach them.
Budgeting for health insurance
Your child may have been lucky enough to latch onto your health plan until now, or you may even continue to cover them if you wish under most plans until they're 26. If not, this new expense can cost more than what some new graduates may think, and they may be caught off guard if you don't help to prepare them..
If their employer provides health care insurance, have your graduate go through all the options available to see how much they could save. If they choose a more traditional health plan and have the option to select a flexible spending account (FSA), then that's another good tip to pass along.
Saving a few bucks on sales tax might not seem that important to a generation who dumps millions of dollars on Fortnite, but once they see monthly and yearly savings, the importance will become alarmingly clear.
Understanding the consequences of high-interest debt
Ideally your child didn't graduate with any debt. But this isn't always an "ideal" world. If they do have debts to pay down, then it's important to sit them down and discuss what it means to pay it back on time.
The Department of Education's StudentLoans.gov website is a great resource for calculators and other educational material. It is also a good place to see if there are any incentives from the Federal government to help limit a graduate's monthly loan payments.
Of course, it's important to prioritize. As in, they'll first need money to cover their living expenses (e.g. rent, food and transportation) and then the rest to pay down loans. It's best to help them figure out a few calculations to see if paying the minimum payments or slightly more will help them become debt-free faster based on what they can feasibly afford.
Saving for retirement
Maybe this isn't a topic we cover much on the FSAstore.com Learning Center, but we do spend a lot of time discussing retirement on our sister site, HSAstore.com. And it's important for graduates to understand, regardless of which tax-free health care accounts they choose. Because it doesn't matter if retirement seems like a faraway destination, it's never too early to start setting aside money for it.
Even a small amount of money compounded over time in an investment account will reap big rewards in 15 to 20 years.
There are accounts like employer sponsored plans (which financial experts recommend participating in as you'll get free money from your employer) and other traditional retirement accounts like an IRA. But, if your child is healthy and putting money in something like an HSA, he or she can invest that cash once the account reaches a certain threshold. In this case, they're saving on taxes, health care costs and investing in their retirement.
We'd love to help our children get off on the right foot as they set out into the world. Teaching them financial lessons and how it applies to their lives is no doubt invaluable. Then you can rest better knowing your graduate is entering the world a little more financially savvy.
New to FSAs? Need a refresher course in all things flex spending? Our weekly Flex-Ed column gives you a weekly dose of FSA Living 101, offering tips for making the most of your tax-free funds. Look for it every Thursday, exclusively on the FSAstore.com Learning Center. And for the latest info about your health and financial wellness, be sure to follow us on Facebook, Instagram and Twitter.
At the time this piece is being published, The Avengers just finished dominating the box office, the X-Men are about to start, Shazam made a brief impact, and approximately 129 other superhero films will hit the streets before the holidays.
So, with all the recent grads about to start their adult lives (and with superheroes on everyone's brains) we figured it might be good to share some scrimping and saving tips to help everyone live and save like a financial superhero.
Remember, we're not financial pros -- you should speak with one before making any decisions about your own planning. But the following tips helped us get ahead, because if you live and save like a superhero, you'll be ready to rise to the occasion and have a better endgame.
(Yeah, we know what we did there…)
Enemy #1: Debt
Debt is a sneaky villain. When you first meet debt, it seems charming, funny and even kind. It's a villain in disguise. No matter how many times debt tries to tempt you, it's important to resist because financial superheroes have to stay lean and ready for action. Even though debt might seem harmless, it actually causes superheroes to become slow and sluggish.
How to conquer debt: If you've attended college, bought a car or experienced a period of unemployment, you've probably had firsthand experience with debt. When I graduated from college, I had nearly $14,000 of student loans. Even though that's less than the national average of nearly $30,000, it felt like a huge amount, especially because up until that point, I had never earned that much money in a single year.
I used all of my human skills to pay it off as fast as possible. I lived with roommates, rode my bike to work, worked an extra job and tried to avoid lifestyle inflation as much as possible to pay off my loans. Within two years of graduating, I was debt-free. Whether you have a goal to become debt-free or to make payments on time, the most important thing is that you have a plan.
Enemy #2: Laziness
If you're anything like me, battling the villain of laziness usually looks a lot like battling myself. The lazy villain is the one that tries to convince you that financial decisions are too complicated to deal with and you're better off just ignoring them altogether. If that sounds familiar, you're not alone. Most of us have come face to face with this villain before.
How to put a stop to laziness: If you feel like you're being financially lazy, then that probably means that you left free money on the table. Depending on your employer, "free money" might mean a 401(k) match that you're not earning or tax savings that you're missing out on because you don't have a tax-free health spending account.
Overcoming laziness (and fear) around money is tough. In fact, I had to miss out on thousands of dollars in savings before I finally opened a FSA this year. But now that I'm (finally) paying for my health care costs through my FSA, I've been able to free up money for new running shoes and I'm halfway to my savings goal for a new phone.
Sometimes you have to learn from mistakes in order to change. But when it comes to overcoming laziness, I've found that the best solution is action. Sometimes a tiny first step is all the momentum you need to get going.
Enemy #3: Short-sightedness
The short-sightedness villain is the one that convinces you that life is tough and it's okay to just focus on the present. After all, the future isn't guaranteed, right? The problem with this mindset is that it's hard to resist. After all, it's tempting to live in the present, focus on your current needs and ignore the future.
How to thwart short-sightedness: Short-sightedness can look different for everyone, but for a lot of us it involves willfully ignoring our future selves. More specifically, it usually means that we aren't saving for retirement. It's hard to prioritize your future self when your current self is struggling to pay the bills, but saving for retirement is one of the ways to break the cycle of financial stress.
It might sound counterintuitive, but the earlier you can start saving for retirement (whether that's in your 20s, 30s or 40s) the easier it will be to actually retire one day, and that's something worth fighting for.
New to FSAs? Need a refresher course in all things flex spending? Our Flex-Ed column gives you a dose of FSA Living 101, offering tips for making the most of your tax-free funds. Look for it every Thursday, exclusively on the FSAstore.com Learning Center.