7 Essential Financial Skills for Young Adults
None of us were born knowing how to handle our finances. It’s a skill that has to be learned over time, often with mistakes — aka, learning opportunities — along the way. But there’s no reason young people have to learn all their financial lessons the hard way. Sending them out into the world with no financial foundation practically guarantees they will end up moving back in with parents or other relatives within a few months; and that’s not fun for anybody! Here are seven essential financial skills all young adults should have.
Basic Budgeting — Understanding how to plan and maintain a budget is a foundation of financial health at every age. A budget is simply a way to understand how much money you have coming in, going out and where it’s going. And budgeting is easier than ever thanks to a multitude of mobile apps that do all the work for you.
Bank Account Basics — While it’s doubtful most Millennials have ever written a paper check or kept a manual check registry, they still need to understand some banking basics, such as minimum balance requirements, what it means to be overdrawn, amounts of overdraft fees and service fees, as well as how to access all their account information.
Understanding Wants vs Needs — Ideally, this is something that’s been introduced before young people are out on their own for the first time. Like budgeting, it’s a simple concept, but not necessarily an easy one to master. At its most basic, needs are the things that allow us to sustain day-to-day life and the bills we have to pay. Everything else is a want, whether we think we need it or not. When money’s tight, wants have to wait.
The Importance of Saving for Emergencies — No one expects a newly minted adult to have a fully funded emergency savings account ready to go, but it’s important they understand why it’s necessary and start setting money aside. Stress the fact that money saved is used for true emergencies only, such as job loss, major car repair, or unexpected medical bills.
How to Develop a Positive Credit History — Now is the time for young adults to start building good credit so they can meet future goals, such as home ownership. Unfortunately, mistakes made today such as getting in too deep with credit card debt, can set them on the wrong path for the future. The most important takeaway is understanding that all bills need to be paid on time, every time.
Understanding Nothing is Guaranteed — It’s one of the harsher realities of life, but important to understand that just because you have a job one day, doesn’t mean you will the next. Or that the best friend you chose to live with never has their share of the rent on time. Preparing young people for these realities will help lessen the impact when unfortunate things happen.
Knowing When to Ask for Help — Young adults are going to make financial mistakes, and some will be bigger than others. It’s important they understand help is available to get them back on track when that happens — such as Credit Counseling and Student Loan Counseling.