Compensation is More than Cash
Employee benefits to discuss with your young adults
Congratulations, you’ve launched a successful young adult! You rocked them, played with them, bandaged their skinned knees and sent them off to prom. Now they have accepted their first full-time position with benefits! I know you’re totally surprised to hear this, but you aren’t done parenting yet. You taught them how to ride a bike and drive a car – now it’s time to teach them how to navigate their employee benefits.
Most young adults are super excited about their first paycheck, and rightly so! For the first time they have cold hard cash they earned themselves, and they can watch it accumulate and grow in their own bank account. They are not so excited about things like retirement investments, paycheck withdrawals, or insurance premiums. Let’s be honest, neither are most older adults, but with experience comes knowledge, and with knowledge comes wisdom. You want the best for your young adult, and that means taking advantage of every employee benefit that is beneficial to them.
Here are three employee benefits commonly overlooked by young adults:
Free Money
Encouraging your young adult to take advantage of their 401(k) program can be a hard sell. I clearly remember having that conversation with my newly-turned-eighteen-year-old. She agreed that automatic saving via paycheck deduction was a great idea...until she asked me when she would be able to access the money. I cannot describe the look of horror on her face when I said “At 59 ½ years old!” Learn from my experience and don’t lead with that information. It only sets you up for failure.
Instead, start with the words, “FREE MONEY!” I guarantee you will get a better reaction. Help them research their employer’s matching contribution and how they can take full advantage of all the free money their employer offers. But don’t stop there! Once you know the amount, use an online calculator to show them the power of compound interest over time. Try THIS ONE to show what their 401(k) would look like if they started making contributions with a match now vs. waiting to start for five, ten, or fifteen more years. Even a small amount contributed regularly now can make a big impact later. Investing early can set them up for incredible future success!
Stock Purchase
This benefit also deducts dollars from your young adult’s paycheck, but it can provide faster positive returns. Help them research their employer’s stock purchase program. Some companies simply offer the option to purchase stock while others match their employee’s purchase up to a certain percent or total amount. Show your young adult how to find the historical performance of the stock and explain the risks and benefits of buying and selling shares.
I encouraged my young adult to purchase enough stock to receive the highest matching amount (more FREE MONEY) while using the stock holding as short-term savings. This option was much easier to swallow for her, since the shares can be sold and funds withdrawn long before 59 ½ years of age. Make sure to explain the timeline of how this occurs – it's not like driving up to your bank and taking money out of your savings account. It can take up to a week or more to receive spendable cash, and young adults are not known for their patience. Finally, make sure to determine if the company will have blackout dates when they will not be able to buy or sell shares, as that will further impact the above timeline.
Life Insurance
Death is absolutely the last thing on your young adult’s mind. In fact, it’s probably not on their mind at all! Maybe it's not even on your mind, but death is a fact of life – 100% of us will die. No one enjoys thinking about it, but as adults we are each responsible for ourselves and those dependent on us, and that now includes your young adult. Use the acronym LIFE to guide your discussion:
L = Liabilities: List their debts (auto, student loans, etc.)
I = Income: List their dependents and determine the income needed to support them.
F = Funeral: Funerals cost $7,000 - $12,000 on average.
E = Education: Life insurance is a great way to provide for future education costs for loved ones.
It’s entirely possible that your young adult may not need life insurance, especially if they have no liabilities, no dependents, and a healthy savings account, but it’s definitely worth having the discussion. Some companies offer employer-paid life insurance up to a certain amount, and that might be enough coverage for your young adult. If they need more coverage, explore options both inside and outside their employment. Remember that life insurance provided by their company typically only covers them as long as they remain at that company.
Be Proud
Hats off to you, mom and dad! You’ve raised a responsible, contributing member of society. You’ve obviously done a lot of things right! Even though you’re not done yet, we know your young adult has an amazing future ahead of them. If you have questions about these benefits – either for your young adult or yourself – give us a call! We can help you maximize your benefits to meet your personal financial goals.
