This post was authored by Salvatore M. Capizzi, Dunham's Chief Sales & Marketing Officer. If you have questions concerning today's topic, please call us at (858) 964 - 0500. Hold us to higher standards.

I read an article in the financial press about a study the Credit Union BECU conducted. It found that 82% of parents feared talking about finances with their children.

I was somewhat shocked that when my recently graduated daughter was leaving home to start her career after college, I found myself hesitant to have a financial discussion with her. This is in spite of that fact that I knew it was time to discuss budgeting and saving money for an eventual house purchase, her future family, and retirement.

The survey noted that even though respondents agreed that parents should lead the "money talk" with teens, nearly three in four parents believe that a financial professional is the best resource for teaching their kids. This is where you come in.

As a financial advisor, you are trying to bring value to your clients and strengthen connections with the next generation. Having the "money talk" with a client's child about saving and budgeting can help you begin a business association with the next generation while adding value to the existing client relationship with their parents.

Last weekend, I did have the money talk with my little girl. Of course, since I manage my own money, I do not know if that puts me in the camp of three in four parents who want their financial advisor to have the "money talk" or the one in four that do it themselves.

Below is an outline of what I discussed that you can use when providing financial advice to your client’s children.

Financial Advice is important for Young Adults finishing school and beginning their careers.

Part One: Pay Yourself First and Give Yourself a Raise Every Year

Our conversation went as follows:

“Do you plan on paying your rent every month?”


“Do you plan on paying your utilities, phone, cable, and Internet every month?”


“Do you plan on saving and investing money every month?”

“Well, yeah, if I have enough money to do that.”

The money talk with my daughter stressed that she needs to pay herself first from every single paycheck.

I explained that she can accomplish this by participating in her company’s 401(K) plan. If her employer did not have one, she could establish a systematic investment plan into an IRA.

Want to Potentially Become a Millionaire?

I showed her that if she placed $5,000 a year in a retirement plan and never a penny more, and she invested in a diversified growth portfolio earning an average of 7.5% return, she would potentially be a millionaire by the time she was age 65.

Since contributions to her retirement accounts are likely to increase as she continues to work, and if she has an employer who matches her 401(K) contributions, she has the potential to be a millionaire many times over by the time she is 65.

Roth or Traditional IRA or 401(k)

Clearly, from a SECURE Act and RMD perspective, Roth qualified plans have an advantage. However, the objective at this point in my little girl’s life is her retirement, not the inheritance that my future grandchildren, if any, will benefit from based on the planning we are doing now.

In my analysis, I do not find an overwhelming case for a Roth or Traditional qualified plan for young people when you take the before tax aspects of a traditional IRA into account. What is most important is that they invest.

This gives an advantage to a traditional qualified plan. The pre-tax contribution makes it more affordable to the child who is just starting out and not earning anywhere near their full potential.

I explained to my daughter that if we assume that she will be in a 22% federal tax bracket, and add a 6% state tax (we live in California), she receives a $1,400 tax break. Meaning, it was the equivalent of investing $3,600 in her IRA when taxes are taken into consideration.

Do Not Stop There

Since we are planning a $5,000 total yearly contribution, the next step of paying yourself first is taking part of the $1,400 and putting it away in a non-qualified account.

For this, we are looking at a systematic investment plan of $100 a month to start with. This will be used in the future when my daughter is ready to make a significant purchase, like a house. Getting in the habit of saving will be beneficial later in her life when it is time to set up a 529 plan for her children or supplement her retirement.

The key is getting into the habit of saving money and always paying herself first.

A Woman Considers Financial Advice For Young Adults Before Online Shopping.

If You Do Not Save It, You Spend It

I explained to my daughter the fundamental law of money:

“A dollar in motion tends to stay in motion - and is spent - unless acted upon by an external force like an investment account.”

My personal experience has been that if I save money systematically in a retirement plan at work or a systematic investment plan for non-qualified money, I do not miss that money. Somehow, I can still pay all my bills and have something leftover.

The reason for this is simple.

If it hits my checking account, that money in motion is spent. If it automatically goes into an investment account, I do not see it, and I do not spend it. It forces me to live within my means while building wealth.

Creating an understanding that if you do not save it, you spend it is an essential cornerstone to me helping young adults develop their financial life.

And Finally: Give Yourself a Raise

I stressed that this budgeting and investment process was not a one-time event. In fact, it was something that she needs to do every year. The reason for this is that she will be getting pay increases, promotions, and she may be recruited by other firms, which typically means a nice boost in her compensation.

This is why she needs to re-evaluate her budget each year. She needs to keep the “paying herself first” strategy at the forefront of her planning, and she should add one additional aspect: She should give herself a raise each and every year!

Even if it increases $5 each month for her retirement savings and her non-qualified systematic investment plan, she has to do it. She should never have the same amount being invested two years in a row.

Part Two: The Budget


In their May 2021 report, the USDA offers guidance on the cost of food when eating at home.

For males between the ages of 19 – 50 years old, the monthly amount ranges from $197.70 for a thrifty plan, to $392.70 for a liberal plan. For a female in the same age category, they quote $175.60 to $348.80.

For my daughter, we went with the USDA moderate plan, rounding it to $275 and added $75 to the food budget for the occasional night out or Starbucks for a total of $350.


The rule of thumb is to spend no more than 30% of your pre-tax income on housing, including utilities, cable, and internet. She will be making $52,500 to start, which means she has a budget of $1,312 a month for rent.

She already has a place she will be sharing with friends, and it will cost her $950 a month plus utilities, which nicely fits her budget.

Student Loan Payments

According to Investopedia, the average student loan balance in the United States is $37,500. Assuming the interest rate is 5% and a 10-year term on the loan, the monthly payment would be around $397.50 per month.


She has a car payment of $173 a month, and we budgeted an additional $55 a month for insurance, $135 for gas, and $35 for car repairs that will go into a separate account each month for a total of $343 a month.

Health Insurance

We set aside $150 for premiums and $30 a month for co-pays (also placed in a separate account) for a total of $205.

Cell phone

$87 went to a phone bill.


We set aside $35 a month for this category that also goes into a separate account each month.


We budgeted $30 a month for clothes which also goes into that same separate account.

Emergency Fund

It is typically recommended that three to six months of living expenses be placed in an emergency fund if you lose your job and need to cover your expenses while you seek new employment.

My daughter is shooting for six months and to build the savings monthly. For this, we are saving $50 a month.  While this is a very slow build, she does not have much more than that in her budget and we want to get started with something.

Her total budget is drafted out as follows:

Financial Advice for Young Adults: Drafting a Budget

We cut it razor thin, but she can make it if she stays on budget. In our money talk, we discussed credit balances and the danger of accumulating debt. We spoke about the interest rates that banks charge and why it is important to resist the urge of developing credit card balances as they are difficult to pay off once you have them.

These are important topics to bring up when giving financial advice to young adults, as it is possible they have never had these budgeting discussions before.

Tracking is the Next Key

The key for her now is to track her spending. There are many apps in the app store that can make this simple to do. My daughter uses an app that allows her to take stock of monthly recurring charges, decide which ones are vital and which are simply nice to have, and adjust her budget if an emergency occurs.

Another important tactic is to shop for the best plans. She needs to review her cell phone and data plan, internet, cable, and streaming charges and find cheaper alternatives until she gets fully on her feet.

Bringing Value to Your Clients

The value you can bring by giving financial advice to your client’s young adult children, including creating a budget and building an investment plan, is significant. It will help them balance what they earn and what they can spend, and brings the concept of building their wealth into sharper focus. Equally as important, you can help them keep out of debt and launch a meaningful life as they begin their career.

In order to best initiate a business connection with your clients’ kids and grandkids, it may help you to understand how well you really know them. To find out, take this 10 question quiz and see how familiar you are with the families you work with! Fill out this short form and we’ll send you the quiz today!

For more ideas of how you can work with your client’s next generation, call us at (858) 964-0500.