Mother helping daughter learn about major financial decisions when moving away from home.

Financial Literacy Basics: A Guide for Your Young Adult – Part 2

Navigating Major Financial Decisions

As young adults leave home, their two most important financial decisions will revolve around their largest expenses – housing and possibly transportation.

Your task is to help your child understand how the finances affected by these two decisions will shape their lifestyle and ability to afford it.

So, in this second part of our series, we offer some aspects to consider as you discuss their journey toward financial independence.

Housing Considerations
Assessing Affordability

Help your child evaluate their ability to afford an apartment based on their salary, whether via salary or independent contractor earnings. Discuss the mandatory expenses of living independently, such as rent, utilities, rental insurance, food, and transportation.

The key decision about affordability is the trade-off between one’s own apartment vs. financial flexibility for discretionary expenses like socializing, shopping, fitness, travel, and hobbies. This insight will help them decide whether to commit to moving from the family home.

Rental Exploration

If your child opts to rent, guide them through finding a suitable apartment within their budget constraints. Considerations should include lease duration and any additional fees for the building’s amenities – gym, storage, club, and services.

Educating them about market conditions can give your child some leverage in lease and terms negotiations. These conditions may include unit availability in the chosen building and general area, length of time between tenants, and rental trends.

Consider that an independent landlord may offer reduced rent in exchange for help with building services such as trash removal, handiwork, etc.

Making your child aware of the value of being a good tenant can aid them in future negotiations. This value can stem from paying rent in full and on time, being a respectful neighbor, being friendly with building staff, etc.

Purchase Insights

If your child has saved enough for a down payment, explore the possibility of purchasing a co-op, condo, or house. Don’t let high mortgage rates deter them. Emphasize the long-term benefits of the right price for the right property. Mortgages can be refinanced when rates are reduced.

To help them make an informed purchase decision, clarify the total cost of ownership, including mortgage, property taxes, insurance fees, and all utility and maintenance costs. Other considerations may be potential building assessments, renovation costs, and amortization of realtor’s fees.

Automobile Considerations
Analyzing Transportation Needs

Engage in a thorough discussion about the necessity of owning a car vs. alternatives like public transportation, renting, ride-sharing, or using cabs when needed.

Car Purchase Considerations

Guide your child through the research and purchase of a car. Consider factors like new or used, payment methods (cash, financing, leasing), insurance, fuel costs, maintenance, and parking fees.

Explore preferences in car size, standards, and features. Balance the need for economy and desire for luxury, and assess maintenance coverage under lease terms or warranty.

Insurance Knowledge
Renter’s or Homeowner’s Insurance

Highlight the importance and benefits of insurance in addition to the requirements. Homeowner’s insurance is mandatory for property owners with a mortgage and usually for coops and condos. Landlords often require renter’s insurance.

Encourage renters to obtain renter’s insurance, even if not mandatory. It not only protects the renter’s possessions but also safeguards them in case of harm to others or their property.

Determine if renters’ or homeowners’ policies offer options to cover loss or damage to jewelry, collectibles, and electronic devices. This coverage is often much less expensive than extended warranties.

Umbrella Insurance for Excess Liability

Introduce the concept of umbrella insurance, offering liability coverage beyond standard home and auto policies at reasonable rates. Particularly crucial in a litigious world, it can protect against claims like libel, defamation, and slander.

Ensure your child’s coverage aligns with their net worth. Umbrella insurance is a well-priced shield against potential lawsuits that a substantial salary could trigger. It provides some privacy in that, as opposed to other insurance, an excess insurance policy’s coverage amount is not a matter of public record.

Your young adult will need two primary policies in order to purchase umbrella insurance. Explore options like non-owner auto insurance, which provides coverage for occasional car use or borrowing, as that second policy.

Ask an Insurance Professional

Encourage your young adult to consult insurance brokers to gain knowledge and advice for their situation.

Read the other articles in our Financial Literacy Basics Guide for Young Adults – Part 1: Nurturing Financial Wisdom and Money Management and Part 3: Employee Benefits and Financial Security. For information on our services in this area, please visit our LifeArc page.

Launching your kids into the world can be daunting. It is even more challenging to help them navigate major financial decisions to build a secure financial future.

Eddy & Schein Group has expertise and experience in empowering newly independent adults with financial knowledge and insight. If you’d like some assistance, please give us a call. We’re here to help.

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Eddy & Schein Group helps:

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Tell us what you need.
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