Sunday, Nov. 08, 2009

Parents must help kids master finances

Young people starting out on their own or in a new job face many challenges in establishing not only their career, but their finances. The most support they can receive now is from their parents.

Older adults have the experience that can be passed on to their children, even if financial support cannot. So moms and dads should move beyond the birds and the bees and sit their kids down and talk about the spending and the saving. This way, when the time comes for a child to grow into independence, that child has established a set of financial morals.

The first and arguably most important lesson for young adults: how to keep a budget. Also stress the importance of keeping to the budget and paying the bills on time to keep a clean credit history for when the time comes to get a loan.

Young adults often don't know the implications of income taxes. This is where an explanation of the power of 401(k)s and IRAs will show a young adult how to save on taxes.

A critical point to teach before it becomes a hard lesson is managing credit cards and avoiding debt. Along with managing credit, emphasize the importance of protecting information to prevent identity theft.

Finally, help a child understand the need to have adequate insurance protection. If a parent is able to help financially, helping a child pay for insurance or including him or her on the parent's policy can help the child receive a lower rate.