A financial plan for a young adult can be akin to being taught to fish.
Youth Wasted on the Young?
I recently read that the average age of a client that works with a financial advisor is 62 years old.1 That led me to ponder one of biggest dilemmas that investors face in life. When we are young, we lack money and experience. Yet by the time we have accumulated enough money and experience, we are short on time.
Given that most folks don’t think much about financial planning until they have assets to plan for, I suppose that it isn’t that surprising that my industry’s customers tend to be on the mature side. Inheritances, business sales, and retirement packages are just a few of the typical “later in life” events that prompt people to think about hiring someone like me. Most that wind up engaging a financial advisor have figured out that they don’t have the time, the interest, or the discipline to create a plan and stick to it. Those realizations frequently didn’t come early in life, nor without the bumps and bruises that come from hard earned experience.
As 20th century Irish playwright George Bernard Shaw once quipped, “Youth is the most beautiful thing in this world--and what a pity that it has to be wasted on children!”
Mature folks can have complex planning needs when it comes to managing their finances, especially when they start thinking about living off of their savings and investments or passing them to the next generation. But young people face challenges that are just as complex, only their planning issues are most often centered on issues like building a nest egg and taking care of their budding families.
Today’s young professionals are dealing with record student debt, sky high housing prices, out of control higher education costs, and looming crises for healthcare, pensions, and Social Security. Some sound advice at an early stage can be very helpful for mapping out plans for achieving realistic financial dreams. Even more importantly, good planning may help avoid some of the common mistakes that many of us more seasoned souls have made along the way.
Buying Lunch
A few years ago, I posted how a parent could “Give $1,500,000 Without Losing an Arm (or Leg)”. The gist of the piece was that contributing to an IRA for your teen children could really payoff down the road for them while possibly saving a self-employed parent some tax money today. It highlighted how young investors can potentially amass significant wealth over their lifetimes using the power of time and compound interest.
Even if you’re not self-employed, this year the IRS allows up to $15,000 to be gifted without any tax implications to as many people as you want. Offering to make retirement contributions for kids or grandchildren that are struggling to make ends meet can allow them to get a head start on their retirement savings. A variant on this gifting approach is to offer them a “matching contribution”, providing an incentive for them to develop good savings and investing habits while allowing for more to be contributed to their retirement accounts (within annual limits, of course) while they have a lot of time to grow.
Teach Them to Fish
However, some would prefer to “teach them to fish” instead of giving away a free meal. Many young people are hesitant to hire an hourly financial planner on their own, but the gift of planning and a relationship with a trusted advisor can mean a much shorter learning curve to financial literacy and freedom.
Fee-Only financial planners work for their clients’ best interest, without receiving compensation based on financial products they sell. You can find one in this directory from the National Association of Personal Financial Advisors (NAPFA).
Of course, if you would prefer that I hook them up (pun intended), get in touch.