By AKEMI DALVI, CPA/PFS, CFP
Congratulations to all the recent graduates, and to the family members who helped them get there! It is estimated that approximately 4 million people will graduate from college this year.
Starting their post-college career may be the first time many new graduates begin to earn a substantial salary. For the families of new graduates, the next chapter of education on financial independence may just be beginning!
Many have said it is harder than ever for young people to move out on their own, buy a house, start a family, pay off education loans, or save for retirement. All of the above is true! It’s never been harder, but with a little guidance, new graduates can set a good foundation for a solid financial future.
Generation Z (Gen Z), or those born between 1996-2012, make up the majority of recent college graduates. According to research, Gen Z makes up one of the most well-educated generations to date. They grew up with technology, thrive in flexible environments, and are skeptical of financial institutions like Wall Street.
Gen Z is anticipated to live longer in retirement than their parents, but are predicted to have less financial safety-nets such as Social Security. Therefore, it is more important than ever that this new group of graduates address their financial planning needs early.
Families can help the next generation become financially independent with a few financial tips:
1. Set Quantifiable, Achievable Goals
Consider bucketing goals into short-term (1-3 years), intermediate-term (5-8 years), and long-term (10+ years) categories.
Perhaps short-term goals are to establish an emergency fund equal to three months of living expenses in case you have an unexpected car repair or sudden change in employment income.
Intermediate-term goals may be to save $1,000 per month for the next five years for a first home or wedding.
A long-term goal may be to save for retirement by enrolling in an employer-sponsored retirement plan and allocate 10% (or more) of your paycheck automatically to your 401k or Roth 401k. You won’t know it’s missing if you save from the beginning.
2. Build a Budget
Gen Z-ers can download an app to track monthly income and expenses. Analyze if your budget makes sense, and make adjustments where appropriate. Studies have shown many Americans pay for subscriptions they don’t use!
Next, set a budget. A common guide is 50/30/20 – 50% for needs (groceries, rent, gas), 30% for wants (entertainment, the fun stuff), and 20% for savings/debt.
3. Dig Out of Debt
In 2024, student loan debt in America aggregated to approximately $1.77 trillion, a sum surpassed only by home mortgage debt. You may consider helping a new graduate pay down debt by matching their student loan repayments. Doing so could encourage good financial habits and help them build positive credit history.
If you have multiple sources of debt, think about paying down the debt with the highest interest rate first to reduce unnecessary expenses.
4. Invest Early
Financial research and the principles of compound interest have shown that early investing in the stock market can provide exponential long-term growth. While it may seem unfathomable to save in the “broke years,” foundational practices of contributing to a work retirement account such as a 401k, an Individual Retirement Account (IRA), or an after-tax brokerage account can literally pay dividends in the future.
Consider utilizing a Roth IRA to lock in the most future benefits through tax-free growth and exclusion from Required Minimum Distributions (RMDs). Parents and grandparents may consider gifting stocks to youth that appeal to their interests to encourage savings.
You can also gift appreciated stock to build the graduate’s assets and escape capital gains taxes that would have resulted if you sold the stock yourself.
We couldn’t be prouder of the accomplishments already achieved by the Class of 2025. Continue to push the boundaries of conventional wisdom, lead with social responsibility, and forge the path ahead through innovation.
As financial planners, we hope to collaborate with you on your path to financial freedom. We will be here to support you and your families wherever life takes you.
The opinions expressed above are solely those of Kondo Wealth Advisors, Inc. (626-449-7783, info@kondowealthadvisors.com), a Registered Investment Advisor in the state of California. Neither Kondo Wealth Advisors, Inc. nor its representatives provide legal, tax or accounting advice.