The Gift of Financial Education for the New Grad in Your Life
With financial adulthood comes a series of firsts – apartments, loan payments, and other complex decisions, all made with rents high and starting paychecks low.
So what if this young adult heading into the world of work could confide in a trained and trusted guide, someone who could share the magic of compound interest or illustrate how to set aside some cash at 22? instead of 32 can translate into hundreds of thousands of dollars later?
If you are close to someone entering this new phase, whether in high school, college, or somewhere in between, offering them professional advice can be one of the most effective ways to put them in touch. on the right track.
There are many ways that professionals can help, whether it’s deciphering health insurance plans or making sense of a new 401 (k) or other retirement plan. Many college graduates will have already made at least one huge decision when borrowing for higher education – and may be stressed about how they will handle when those loans mature this year.
Financial know-how comes in many forms, so highly motivated people can figure out how to navigate on their own. But there are a lot of snake oil sellers out there, and TikTok videos and crypto-hyping friends don’t always provide great advice. Having a few hundred dollars on hand for advice can help avoid more costly mistakes, while also providing the support needed to make more thoughtful financial decisions, even if it’s not the most favorable option on the sheet. Calculation.
“A lot of times I end up creating plans where people aren’t necessarily doing the mathematically optimal thing, but it’s good for them,” said Cristina Guglielmetti, a financial planner in Brooklyn who offers a package for new graduates.
The good news: Financial advice has become more affordable in recent years. Here’s a look at what a new graduate is likely to explore during a session, how to find the right kind of professional, and where you might be able to find help you don’t need. pay.
The basics and a budget
A major goal will almost certainly be to control your cash flow and the overall management of your money.
“If I can find someone completely new, I would ask them to see what they want to see in their life in five or 10 years and figure out what it will take from a financial standpoint,” said Anna. N’Jie-Konte, a financial planner in Maryland.
Then, after putting money aside to cover essential expenses like rent and food, she will help set reasonable savings goals. All that is left is for discretionary spending. Getting the formula right can take a bit of adjustment, but it sets the finances up so a new grad doesn’t have to think too much about budgeting – essentially spending whatever is left over.
Ms Guglielmetti called this a way to get back to a safe spending count and provide a “safeguard against lifestyle slippage.”
New graduates can get help with things as simple as reading a pay stub filled with abbreviations. Financial planners can also give them advice on setting up a 401 (k) or other retirement account and choosing investment options, deciding if stock compensation is available to them, and how to pay them. automation as much as possible of their financial life.
Find the right fit
Financial advisers have long had a reputation for being older, male, and focused on high net worth families.
“For much of the population, there was a time when this advisor wouldn’t have much in common with them,” said Kevin Mahoney, a financial planner in Washington, DC, who focuses on millennials. “This is no longer the case.”
Looking for a peer – or someone who can better understand their situation – is a good idea, giving graduates access to someone who matches their background and needs.
But personality matters too: when contacting potential advisors, write down the types of questions they ask and in what order. Some professionals may focus more on numbers, spreadsheets, and tactics, which may be fine for some graduates. But others may benefit from a counselor who focuses on the individual first and is receptive to the emotional aspects of money.
Mr Mahoney said many people have never been asked what they find most stressful about their finances, and giving them the space to think it over could result in a better plan. For example, their student loans can make them nervous because they grew up in a household with high debt, which can influence an advisor’s recommendations.
And empathy about these feelings can attract an otherwise reluctant young person. “You can see it on people’s faces – they are just starting to leave,” Mr. Mahoney said.
He also echoed Ms Guglielmetti’s point that what looks ideal on the spreadsheet isn’t always the most important thing. “To some people, the thought of paying off debt for 20 or 25 years – even though the math says it’s the optimal decision – seems debilitating,” he said. “If this strategy makes them less optimistic or less confident about managing their money, they may not make much financial progress in the long run and will likely have to take a different approach no matter what the math says. “
Fees and trustees
A younger adult is unlikely to need more than one or two meetings, perhaps one in depth and one shorter. You can expect to pay between $ 200 and $ 450 an hour, or maybe $ 500 flat rate for a package. And if you’re a new graduate looking for some advice on your own, don’t hesitate to ask for a payment plan – or pay in a few installments, experts said.
The XY Planning Network, Garrett Planning Network, and the National Association of Personal Financial Advisors are member organizations that include hundreds of certified financial planners who charge a fee for their time and services but do not earn money or commissions on the products sold, which helps to minimize conflicts. of interest. Specifically, you can find planners who charge by the hour or by the project – in other words, you can pay them a flat rate, whereas more traditional planners require a minimum of assets and charge a percentage of those assets. .
Group planners also act as trustees, which means they are required to put the interests of their clients first. If an advisor doesn’t promise to act as a trustee, find another who will.
If your graduate has to pay for the work herself, she may be able to find a professional willing to volunteer – something that is more prevalent during the pandemic, experts said.
And professional counselors have said that sometimes they might not be the best option, such as when graduates are trying to pay off credit card debt. For them, Mr Mahoney said, he tends to suggest financial coaches, which can be cheaper and can offer material and videos online to help clients tackle their debt.
There are also services, including the Institute of Student Loan Advisors, which offers free advice, to help get students on the right track if student debt is their biggest problem.
There are ways in which this gift can go very badly: if the graduate doesn’t buy into it, or if the donating adult becomes too intrusive. Financial advisers warn that adults should give the gift, then step back and let the pros do their job.
It’s important that your new grad is comfortable speaking to the counselor, and this might not be possible with a family member on one shoulder.
“The person has to be on board, and you dig into that stuff, so they have to be ready,” Ms. Guglielmetti said. “My client is the graduate, not the parent.”
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