It’s spring, which means it’s graduation season. If your son or daughter is graduating from high school or college, I hope you plan to celebrate in a big way. Graduation is a significant milestone in a young person’s life.
Grads who are heading to college or into the workforce have a greater chance for success if they are financially literate. I recommend beginning to teach children about the value of money as early as possible. And then, as they get older, continue to build their knowledge about saving, budgeting, managing debt and investing.
A recent survey shows that 38 percent of Americans learn about money and financial concepts mainly from their families, while only 15 percent learn about money at school. More schools are beginning to offer financial literacy courses. Over the past five years, 27 states have enacted financial literacy requirements for high school graduation, with 16 mandating a stand-alone personal finance course.
We still have a long way to go before schools become the primary source of financial knowledge for young people.You have more opportunities to teach your children about money than schools do.
Grads who leave home with a strong foundation of financial knowledge can minimize their dependence on student loans. They are also more likely to avoid the daily stress associated with having financial issues. In addition, if you plan to leave an inheritance to your children, you want them to be great stewards of the money you have worked hard to earn.
Everyone benefits when grads are financially literate. If you have not given your grad a solid foundation of financial knowledge yet, make it a priority now!
Why financial literacy is more crucial than ever
Financial literacy — the ability to understand various financial skills and to use them effectively — has always been a key to financial wellness and security, and today it’s more important than ever.
Not only has the world of personal finance become more complex; the rising costs of health care, coupled with the rising cost of living, student loans, career uncertainty, inflation and economic shifts make it more difficult to manage money.
A 2025 Bankrate report reveals that 59 percent of Americans don’t have enough savings to cover a $1,000 emergency, while 80 percent of Gen Z say they couldn’t afford basic expenses if they suddenly lost their income. This kind of financial insecurity adds stress to people’s already complex lives and makes it difficult to plan and save for the future.
Financial literacy empowers us to make wise financial decisions and avoid costly mistakes. It enables you to control your financial future and to be more confident about your ongoing financial situation.
Core concepts every grad should understand
Young people graduating from high school and college need to understand the fundamentals of personal finance. They include setting and following a budget, managing cash flow, saving, investing, using credit cards wisely, building a good credit score and borrowing responsibly. And, like the rest of us, recent grads need to understand the importance of having an emergency fund to cover unexpected expenses.
The power of compound interest and early investing
One of the most important financial concepts that will benefit recent grads, and the rest of us, in the long run is the power of compound interest and early investing. Albert Einstein once said compound interest is the “eighth wonder of the world.” It really is pretty amazing!
Once your children understand how it works, they will probably want to try it themselves. They will be amazed when you explain that if someone invests $10,000, for example, and it earns 10 percent a year in interest, they will have $452,000 in 40 years!
1. Roth IRAs
A great way for people in their twenties to start saving is through a Roth individual retirement account (IRA). Roth IRAs offer several benefits that make them good choices for many young people who are just beginning their careers. It’s also a good alternative for young people who do not have access to employer-sponsored 401(k) plans.
With a Roth IRA, you have to pay taxes up front on contributions to the account. However, the benefit is that your investments grow completely tax-free. Roth IRAs also offer flexibility when you make withdrawals. Because you’ve already paid taxes on your contributions, you can withdraw money at any time, tax-free and penalty-free, no matter what your age or how long the account has been open.
Young people can use Roth IRAs as the source of a secondary emergency fund or to support future needs like education or a first home.
2. Index funds
Another great way for young people to get started with investing is through index funds.
An index fund is a type of mutual fund or exchange-traded fund (ETF) that tracks the returns of a market index, such as the S&P 500 Index or the Nasdaq 300. The goal of index funds is to reflect the same holdings as the indexes they track. Therefore, they are naturally diversified and therefore hold a lower risk of loss than individual stock holdings. Market indexes tend to have a good track record, too. Although the S&P 500 fluctuates, historically it has generated nearly a 10 percent average annual return over time for investors. (However, future returns are never guaranteed.)
Money mindset and habits
A huge part of financial wellness is having a positive yet realistic mindset about money and adopting good habits over time. You can begin teaching these important concepts to your children when they are young.
For example, teach them to resist the temptation of instant gratification in situations where delayed rewards offer a better deal. Let them see for themselves how delayed gratification — both in saving money and in other areas of life — can help them get ahead. Also set up a checking account for them, or a prepaid debit card, and teach them how to keep track of their spending and also how to save money.
Communicate your money values and goals to your children, and reinforce them every chance you get. Guide them in honoring those values and goals. Teach them to use those values and goals as their financial GPS every single time they are faced with a financial decision.
How parents can teach these lessons
For various reasons, money is a somewhat taboo topic in American families. People hesitate to discuss their financial situations with their children, especially when money is tight. I believe it is much more helpful if families have open discussions about family finances.
1. Have regular family money meetings
A great way to accomplish this is to get in the habit of having regular family money meetings.
No matter how young your children are, they will benefit from being present for these regular, open discussions about money. They need to understand how hard their parents work to earn money so they learn the value of it. Encourage them to ask questions. When they are old enough, give them a small allowance, and teach them to save part of it, donate part of it and spend some of it. Let them join discussions about where to go on family vacations.
2. Be a strong money role model
During these meetings, discuss any financial mistakes you’ve made. Explain what you could have done differently and how you corrected the mistakes. Also explain the consequences of poor financial decisions. Being a strong role model is one of the best ways to teach your children about money. They are watching and listening closely, even if they pretend they aren’t!
We all learn more from our mistakes than we do from our successes. Let your kids fail on a small scale, with your guidance, so they learn how to manage money more effectively. Always focus on lessons learned!
3. Provide them with resources for learning about money
Regularly give your kids access to books, tools, apps and other resources that can help them learn about money in an interactive way, on their own.
4. Take them with you to meet with your advisor
And finally, take your children with you when you meet with your financial advisor. They will learn the value of receiving guidance from trusted professionals. It will show them that you have a team of experts guiding your decisions, and it will likely lead them to hire their own advisors when they go out on their own.
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Learning about money and how to manage it well is a lifelong venture. The earlier your children begin to learn this valuable skill, the more it will serve them in the future. Every time parents teach a valuable money less to their children, they are preparing them for the future — and breaking the cycle of financial illiteracy that holds too many Americans back from achieving their potential.
