Navigating Finances as a New Graduate
Launching your career post-college is exciting but also scary. You need all the support you can get even in boom times. With economic uncertainty, the challenges are even greater.
Here are a few ways you can help yourself get a handle on financial matters in those early days.
1. Moving back home.
More than half of young adults ages 18 to 29 live with their parents, according to a 2020 study from the Pew Research Center. It’s common for college graduates to move back home while they look for a job or try to save money until they can afford a place of their own, but at 52 percent, this is the largest percentage since the Great Depression. The key to a successful transition is for both sides to set ground rules and make sure everyone is clear on the details of the arrangement. Whether your parents charge rent is up to them, but adult children should contribute in some way, whether it’s purchasing their own groceries or doing household chores. You should also agree to a timeline, if possible. Will you move out when you find a job? After a year? Working toward your independence will help build your confidence and keep your parents happy. When the time comes, your folks are there to help review lease agreements or establish a budget to make sure your next home is affordable.
2. Paying back student loans.
The 2020 numbers showed 45 million young people on the hook for $1.56 trillion in tuition-related debt. Parents can help their children pay back student loans, but there are a few things to keep in mind first. If they go over the amount of the gift tax exclusion, which is $15,000 in 2020, they must report it to the IRS. Also, your parents will need to consider their retirement and what kind of dent paying off these loans will put in their nest egg. Remember that you as a student borrower have several options to help during hard times. Deferment, government-sponsored repayment plans and forgiveness programs are available under certain conditions.
3. Exploring health insurance options.
New college grads have a lot on their minds, and health insurance isn’t usually top on the list. Your parents have plenty of experience here and can help evaluate your options. That could include staying on their insurance, purchasing your own plan or going with catastrophic coverage. The Affordable Care Act allows children to remain on their parents’ health plan until the age of 26, but the full suite of coverage offered may be more than you need. Instead, you can purchase coverage individually through the insurance exchange where you likely will be eligible for federal subsidies. Catastrophic coverage may be a good option if a basic safety net is all you want. It’s designed specifically for young adults under the age of 30 who either can’t afford a comprehensive insurance plan or need to fill the gap before they find a job that offers health benefits. The right plan depends on your medical needs, such as how often you visit the doctor and whether you take regular medications. Many graduates have up to 60 days after graduation to find health insurance, which should give you time to explore all of their options.
4. Establishing credit.
If you want to rent an apartment or take out a loan for a car, you’ll need to have some kind of credit history to show you're reliable. Parents can start helping establish credit as early as the end of high school years so you have time to build up your credit score. But once you turn 21, it's much easier to get a credit card on your own. Using it wisely and paying it off on time are good ways to start building credit. You can also establish a recurring bill in your name, like a mobile phone.
The common thread here is that you can and should help yourself as much as possible, but that your parents are also a resource to jump start your transition. Don't rely on them to take over and resolve your money problems, and don't assume they will help you for an extended period of time. Even though they’re available to offer advice and resources, you will have to learn a few difficult financial lessons all on your own. Welcome to the real world!
Rick Nelson can be reached at 423-386-2685 or by email at rick.nelson@pnfp.com.
