Give your graduate some financial lessons

It's unfortunate, but many schools — including institutions of higher learning — spend little time educating their charges about the fundamentals of personal finance. Some kids view credit cards and loans as pipelines to free cash. Some never learn to balance a checkbook. Others consider saving for the future as a drag on today's fun and a waste of perfectly good pizza money. All too many make poor choices in their twenties and thirties, then look back with regret from the vantage point of middle age, wishing they had saved more and spent less.
If your son or daughter will graduate this spring, why not give a graduation gift that keeps on giving? Financial wisdom. To launch the discussion, consider the following three topics:

• Avoid debt if you can. Buying things on credit — whether you're purchasing a car, a house, a vacation, or an education — generally costs more than if you paid for the same item with cash. In the case of larger items, you could end up spending many times more. Cash is king. Many sellers provide discounts to buyers who pay cash. If at all possible, buy stuff with money that's already in your bank account. If you must take on debt, negotiate the lowest interest rate and shortest loan terms you can, assuming you can afford the monthly payments. To avoid accruing interest, pay off credit cards each month. Minimum and "interest-only" payments are the enemy.

• Know what you're spending. Track your expenses for a month or two. You might be shocked. Morning lattes, restaurant meals, impulse purchases at the local department store — all these can drain your finances almost without your awareness. Learn to live within a budget. Prioritize. Be an exception to the rule.

• Save; then save some more. Unless you want to depend on social security in your old age, it's wise to start saving early. The sooner you start, the less you'll need to set aside over time. Be sure to contribute to your company's 401(k) plan if it's offered. When you get raises or cost of living adjustments, increase your contribution percentage. Consider setting aside some of your income in a Roth or traditional IRA as well, and resist the temptation to withdraw money from retirement accounts too soon.

Develop habits of financial discipline now, and reap dividends in the future.

aconner@atconnercpa.com