The Greatest Gift

Linda P. Erickson

Linda P. Erickson, CFP^®, is the president of Erickson Advisors and a registered principal offering securities through Cetera Advisor Networks, LLC, 336-274-9403 lindae@ericksonadvisors.net.

The season of graduations is upon us. Mortar boards, proud parents and grandparents, smiles and expectations.

Reflecting on the kinds of presents these grads will likely receive, I think of everything from watches (maybe in a time gone by), to new cars, to summer travel, or maybe a substantial check. These gifts surely are range-bound by what the family can afford and the hopes and dreams of the graduate. They will likely be purchased, wrapped and delivered within the span of a few weeks.

I suggest, however, that the greatest gift you can give a graduate is one that is delivered quietly and carefully over a much longer period of time, probably years. The greatest gift a family can give a graduate, a young person being launched into adulthood with all of its rewards and challenges, is the gift of Financial Literacy. A graduate who can manage a checkbook, understand a pay stub, manage credit, understand the importance of regular savings and investment, both through his or her employer and individually – this is a graduate who is prepared to step into the world.

How can you impart Financial Literacy to your children or grandchildren? Here are a few basics that may help you get started or encourage you to keep going.

1. Start early and make discussions around money easy, maybe even fun. Including children in the tasks of adult money management is the best way to teach.
2. Explain how to open a checking account, the costs involved, the danger of overdrafts and how to balance a checkbook. There are many good online programs to help here.
3. Talk about credit cards. So many transactions today are done online, they seem to be a necessity, but young adults need to understand the difference between wants and needs, good debt (mortgage) vs. bad debt (credit cards), and the costs of failure to pay down a high credit card bill. Introduce them to the reality of their FICO Credit Score and how it will affect their ability to rent a home or even get a job.
4. Saving for a goal is almost an old fashioned idea. Bring it back, at least for discussion, and contrast the cost of, for instance, new living room furniture for that first apartment, financing through credit vs. saving and buying with cash.
5. Talk about the importance of saving through a 401(k) or IRA. Young people think retirement is so far away. they will wait to begin. Other excuses are the employer forms are often complicated, or they don’t want more taken out of their check. With no pension in their future, and the practice of regular, tax-favored savings is critical.
6. Talk about loans. Graduates today often have crushing debt, and the management of this debt will determine their financial health for decades to come. Little to no debt is the “secret sauce” of financial freedom.