Want to Help Your Children? Give Them a Financial Plan
Did your child or grandchild graduate from college this month? Is there a June wedding on your family calendar? Here's an idea for a practical -- and unusual -- gift: a session or two with a financial planner.
The earlier young adults find their inner money manager, the better their future. You might also consider this gift when a child gets his or her first regular job, starts a family, or inherits money.
Be sure that your kids are interested before you share the happy news. Usually, they jump at the chance to get expert advice but sometimes this gift requires a delicate approach. You don't want to imply that you think they're not handling their money well (even if they aren't). If they're driven to a planner unwillingly, they won't listen or follow through.
In general, people in their 20s don't know much about personal finance. They're in the dark about credit scores, life insurance, and auto loans. They're often in debt and scrambling to cover expenses until the next paycheck arrives.
At the session, your kids should be prepared to disclose all their financial sins -- income, debt, savings, investments, insurance, spending, tax returns. The simple act of making a list of their current expenses might surprise them into reforming on the spot.
Planning usually starts (and often ends) with budgeting. Young adults need a plan for working down debt and increasing their savings.
They also need motivation and the secret sauce is setting goals. The planner will ask them to make a list of what they want -- both near-term (less debt, more savings, a vacation, a car, a down payment, a business of their own) and longer-term (children, college savings, retirement). The sessions will show them what it takes to get there, and help them set priorities. They should leave with a list of things to do, including making a will.
If you already work with a financial planner and your kids live nearby, ask what he or she will charge for a sit-down with them. Some will spend an hour with them free, or offer four hours at a discounted price. Consider a follow-up visit a year later. If they've accomplished even two of the things on their to-do list, your gift was a blazing success.
If you don't have a planner, ask your friends for recommendations. You want a "fee-only" planner, meaning one who earns a living solely by charging fees for advice. Steer away from planners who sell financial products of any sort. They'll be more interested in getting your kids into expensive mutual funds than working through their budgets or advising on their 401(k)s.
Here are three places to look for fee-only planners: Garrett Planning Network (hourly fees for services); the National Association of Personal Financial Advisors (some deal only with high net worth clients but others do short sessions, too -- check their websites for those who specify help for the middle class); and the Alliance of Cambridge Advisors (they usually want annual retainers but some take clients by the hour).
Call or email any planner who looks interesting and explain what you want. If the planner responds, discuss fees and goals. Planning sessions typically run two to five hours, over one or two days, depending on the planner and what the children need. Fees generally range from $150 to $200 an hour or a single fee of $750 to $1,200 for the job as a whole.
Don't expect a miracle. If the child simply gets interested and learns some basics, you're ahead of the game.
More on MoneyWatch:
Your 20s: Finding a Job, Setting a Budget
Can You Trust Your Financial Planner?
Do Certified Financial Planners Really Put Clients First?