Give grads a financial education

This summer, thousands of new college graduates are plunging into the job market, starting their careers. Although they may be well prepared to tackle their new jobs, many will graduate with substantial debts and without having learned the financial facts of life.

Here are some tips from certified financial planner Dennis Filangeri (www.myfrontdoor.com/ffs) to pass along to your kids or grandchildren

Figuring your net worth is an assessment of your financial health: It is your assets minus your liabilities. As a new graduate, you're likely to have few assets and lots of liabilities in the form of accumulated student loans and credit card debt—in short, a negative net worth.

Even though your net worth is probably negative, calculating it is important because it provides a benchmark against which you can measure your future financial progress. For example, many college graduates will find good-paying jobs. They'll buy a new car, new clothes, lots of other consumer items, perhaps even a house or condo.

But unless you're putting away extra cash toward student loans and credit card debt, and salting money away in savings and investments, you are not improving your overall financial health. In fact, a new car and a new condo only add to negative net worth.

By measuring your net worth each year, you can see if you are reducing your debts and building toward a positive net worth.

Health insurance will be one of your first concerns because you'll likely be dropped from your parents' health coverage upon graduation. Your new job probably will provide health coverage, but it may not kick in for a few months, or it might take you a few months to find a job. In the meantime, consider buying a short-term medical policy. They can be pretty reasonable, especially if you are young and healthy. Some colleges also offer temporary coverage for recent graduates.

If you move into an apartment, don't forget renter's insurance. This covers loss or damage to your personal property, which is not covered by your landlord's insurance. It usually is very affordable—say $200 to $300 a year.

Shop carefully for auto insurance. It will be expensive, but as you get older, costs typically go down because you are less of a risk.

As a new graduate, it's more important to have disability insurance than life insurance (unless you already have dependents).

According to the American Council on Education, about half of all college students graduate with student loan debt, averaging around $12,000 each. In addition, students often have racked up thousands of dollars on their credit cards.

Debt can be a huge financial drag, so you'll want to put any extra money you can toward paying down that debt. Try to pay off the debts with the highest interest rates first. And minimize accumulating new debt such as a car loan or high-interest credit cards.

In some cases, employers might even help out with paying off student loans.

Budgeting isn't just a matter of making sure that your expenses don't exceed your income. Otherwise, as noted in the section on net worth, you may just be treading water financially. A good budget should allow you to sock away extra money. Some of it might go toward paying more than the minimum payments for student loans or credit cards, and some may go toward savings. Even a few dollars can help, and get you into the habit of saving.

Especially important is to start a retirement fund. Participate in an employer-sponsored plan such as a 401(k) or, for liquidity, open your own Roth IRA. Time is on your side, and even a few dollars invested in tax-favored accounts early on can compound substantially over time.

High school and college graduates are notoriously poorly educated about how to manage their money. Few students know even the basics about investing, budgeting, taxes and work benefits. Yet one of the life skills necessary for today's complex world is sound money management. Lots of good books, magazine articles, seminars, and professional advisers, such as certified financial planners, can help you learn the basics.

But watch out: There's also a lot of misleading information out there. Keep in mind that money management is not about making money, it is about managing well the money you make.

Zall, Bureaucratus columnist and a retired federal employee, is a freelance writer based in Silver Spring, Md. He specializes in taxes, investing, business and government workplace issues. He is a certified internal auditor and a registered investment adviser. He can be reached at miltzall@starpower.net.