Dear Carrie: My daughter has (at last!) graduated from college. Although she took several economics classes, she really doesn't have a clue about handling her own money. How can I help her get started on the right foot? -- A Reader
Dear Reader: Congratulations! Your daughter's college graduation is quite a milestone, and I'm sure you're very proud of her. But I am particularly delighted that you recognize her education is still incomplete. Most young adults have received no instruction about personal finance at the moment they need it most: when entering the work force and starting "real life." With your daughter, I'd start with a few basics, both "big picture" ideas and some very practical ones.
-- Live within your means. This is a big one and everyone should follow it. Your daughter should budget her money (including some for savings, which I'll mention below) and pursue a lifestyle she can afford. This will keep her out of debt, help her build wealth for the future, and -- just as important -- reduce her anxieties about money.
-- Plan for retirement. This may seem ludicrous to someone in her early 20s, but if possible, now is the ideal time for your daughter to start building wealth for retirement. If she can start putting away 10 percent of her income for this big goal now, she'll probably never have to increase that percentage. If she's at a job with a 401(k) and a company match, at the very least she should take full advantage of the match. Otherwise, a Roth IRA is a smart move.
-- Plan for the unexpected. Urge your daughter to start creating an emergency fund that would cover her basic living expenses for three to six months in case she enters a prolonged period of unemployment. Even if she knows that you can be a safety net, she'll relish the sense of independence that a nest egg can offer.
-- Have health insurance! Mandatory, even for the healthiest 20-something. A bad accident or an unforeseen illness can be ruinously expensive. If your daughter can get health insurance through work, perfect. If not, she should be able to stay on your policy as a dependent (provided she's single and under 26), thanks to the health care bill signed into law in March. Check with your insurance company or human resources department for details (the bill takes effect on Sept. 23, 2010). If she can't be covered under your policy and she doesn't have a job that offers health care benefits, shop around and find a policy. If she's healthy, a high deductible policy should be inexpensive.