After the celebration: New graduates focus on finances

Bill Cass

Bill Cass , 5/31/2017


After years of work, college graduates are setting career goals and looking to the future. They may also be facing multiple financial challenges, including paying for student loans and trying to save for additional education or home ownership.

Seeking professional advice and developing a financial plan can be critical for navigating next steps. Here are six financial considerations for recent graduates:

1. Set up an investment account. Some parents may have already set up an investment or brokerage account for their children as a graduation gift. In particular, a Roth IRA may make sense given the fact that recent graduates will likely be in a lower tax bracket. It’s also important to establish an emergency account for unforeseen expenses. Young investors may also be more engaged with the idea of investing if they see it as an opportunity to express their values, for example by selecting ESG (environmental, social, or governance) investments. Sustainable or socially responsible investing is becoming more popular. A 2016 study found 86% of millennials say they are interested in socially responsible investing.

2. Pay off student loans. In a recent survey, most young millennials (57%) report that their college or trade school education was worth the investment, and 80% acknowledged that the education helped them secure a job. At the same time, the debt incurred for college is an obstacle for many graduates. The survey found student debt averages $10,205 and is causing many young workers to delay goals such as buying a house (39%), saving for retirement (31%), moving out of their parents’ homes (27%), or getting married (21%).

With so many demands on their finances, it may be an opportune time to discuss budgeting in order to make payments on loans while also saving for other important milestones.

3. Build credit. Young people are often cautioned to avoid accumulating credit card debt. This may have been easier during college, when expenses are fairly predictable. But, building a credit history becomes important as an adult, and may be required when applying for certain jobs, filling out a rental application, buying a car, or seeking a home mortgage.

4. Save for retirement. Saving for retirement can be easy if a graduate’s first job offers a workplace savings plan, such as a 401(k), and is particularly important if there is a company match. Every graduate should understand the benefit of starting early to maximize the potential for earnings.

5. Pursue additional education. For those who want to pursue additional degrees, developing a savings strategy will be critical.

6. Plan for taxes. Professional advice may also help graduates with tax planning. Some may be able to take advantage of the tax deduction for student loan interest, or use strategies to take advantage of the 0% tax rate on long-term capital gains and dividends available to taxpayers in the two lowest income tax brackets.

Connecting with new grads

For advisors, making connections with a new graduate can be an opportunity to extend your planning services across a client’s family. Studies indicate that nearly half of recent college graduates are still living at home, presenting an opportunity for a family meeting and an opportunity to offer counsel that will help these recent graduates build a solid financial foundation.

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