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Financial Tips for New College Graduates

Financial Tips for New College Graduates

Jenius Bank Team4/30/2024
Young man studying on a couch.

Help your college grad prepare for the future.

College graduation is an important time of transition for young adults where they take on even more financial responsibilities for the first time—paying bills, building credit, and saving for the future. In a 2022 study by College Pulse, about 57% of respondents rated their financial knowledge as fair or poor.1

If your adult child is graduating soon, consider passing on some beneficial financial lessons and tips as they embark on their first years of adulting.

Key Takeaways

  • Discussing basic financial concepts with your new grad may help set them up for long-term financial success.

  • Understanding how debt payments and interest work may help your grad make smarter financial decisions.

  • Creating a plan and building savings now may help college grads reach their goals, like buying a home or moving into their own apartment, sooner.

Personal Finance for College Graduates

College grads have many financial considerations to keep in mind. Here are a few important lessons to pass on to them as they start establishing their careers.

Understand True Compensation

When employers offer them a job, it’s normal to focus on the salary. But remind your college grad to have a bigger picture view. As a parent, you know from experience that salary or hourly pay rate doesn’t always reflect your full compensation.

When reviewing offers, suggest they also consider the benefits the company provides, such as retirement matching, student loan repayment assistance, employer-covered health insurance, and paid time off.

You may want to highlight that a company who offers them a lower salary, but has better benefits, could ultimately help your child have more money in their pocket each month.2 As you’ve probably experienced, strong benefits could save you in the long run – for example, having dental insurance to help cover the expense of a sudden root canal or a better 401(k) match that helps you increase your retirement nest egg. And of course, paid time off has a monetary value, but it also contributes to quality of life—something certainly worth considering.

Even if a compensation package is competitive, employers may have room for adjustments. A new grad doesn’t have to accept the first package they’re offered. Hopefully they are doing their research to understand the average compensation for the role and negotiating from there. This is a lifelong lesson in managing a career—as you gain experience, it’s important to factor newly acquired skills, and their value, into your negotiations.3

Get Finances in Order

After graduation is a good time to regroup on finances, and to do so, some grads decide to move back home to help save money.4 Every family is different, and this may or may not be possible for everyone, but research shows that living at home is common with Gen Z grads.

For a young adult, the days after college may be their first time truly managing their own finances. Teach them how to create a plan to track the money coming in and categorizing their money outflows, like a car payment or rent (yes, many pay rent even if they live at home). It’s important for them to get a handle on the essentials in their budget, whether the budget is formal or not.

Once they know non-negotiable expenses, they can set financial goals. Some examples would be building up savings for an emergency fund, a vacation fund, or even for a house down payment.

Teaching your new grad how to create a money plan could help them achieve their shorter-term financial goals and establish habits that propel them in the long-term.

Building Credit

Another lesson to pass on to your adult child is the importance of credit scores and credit history. Explain that a credit score impacts a person’s ability to access various financial tools and the rates lenders may charge when borrowing money.

One step further, show your grad how to check their credit report and credit score. Explain the different components that make up their credit score and how the information on their credit report is used by lenders and other parties. This is also a good time to mention that they should check their credit report for any errors, such as closed accounts being reported as open or accounts they don’t recognize. The latter could be a sign of identity theft .

An option for building credit, and potentially improving their credit score, is opening a credit card and paying the balance off in full each month. This could help them to establish a history of on-time payments. If your grad has student loans, discuss the role these play in their credit history too.

Start Saving for Retirement

When twenty-somethings are starting out in the workforce, it’s normal for retirement saving to seem like something they could put off.

As a parent who’s not a twenty-something, you may know first-hand that starting retirement savings early could have a significant long-term impact due to the compounding effect on these savings. It’s called the time-value of money because over time, the growth may become exponential.

If their company offers a 401(k), encourage your adult child to enroll in it and have a portion of their paycheck go toward retirement accounts, especially if the company provides matched contributions as part of compensation.

If their company doesn’t offer a 401(k) or they’re looking to put additional funds away for retirement, they may want to consider opening a traditional or Roth IRA. Contributions may lower their tax obligations overall, potentially saving them money at tax time.

Look for Ways to Save on Loans

Student loan payments are a reality for many college grads, and finding ways to tackle that debt quickly is often a top priority.

Your grad may want to consider making an extra payment or increasing the amount they pay each month, even by a little bit. Doing so may help pay the loan off faster and could save money on interest that accrues over the life of the loan.

They may also want to consolidate loans into a single payment monthly. A single payment monthly may be easier to keep track of over time, and if the market conditions are right, consolidating loans may end up saving them money on interest by letting them lock in a lower rate.5

Final Thoughts

Passing essential money lessons on to your new grads is a great way to help set them up for financial success.

Keep these tips in mind as you have conversations with your adult kids. A little bit of knowledge goes a long way toward helping the next generation manage their money and achieve financial wellness in a healthy way.

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