The 4 Things All Parents Should Teach Their Adult Kids About Money

To the parents of this year's graduating class of 2014:

Graduation is such an exciting moment. It's a proud moment. It's also the moment we realize our children have grown up, and are ready to face the world on their own. As parents, we're full of hope for them. Hope that they'll be happy. Hope that they'll stay healthy. Hope that they'll get a job - one that they like and that pays well. And hope that they make smart choices, including, smart financial choices.

It also goes without saying that this is a very exciting time for our children - now young adults. They've worked hard to get to where they are today and are eager to launch their career, find a place to live, and start a life of their own. But they are in for some shocks: A shock at their first paycheck, which, if we're being honest, will not be nearly as much as they thought. A shock once they discover that they're likely tospend more than $170 on food per week. Or, a shock that their student loan payments will kick in right away, and speaking of which, the average student loan debt per student for last year's graduating class was $35,200, according to aFidelity survey. They will soon realize how fast that money can disappear.

So, at a time of celebration and congratulations, I urge you to have an honest conversation with your young graduates about money. Help them understand where their paycheck will go, how to set - and stick - to a budget, and what kinds of questions they should ask when they are starting out on their own.

As a father of three kids, here is the advice I'll give my children, and hope you will too.

Know your income.
Income is not synonymous with salary. I know it will be tempting to go out to a fancy dinner on payday or splurge on a shopping spree with your first paycheck. But consider this: The overall average starting salary for the 2013 graduating class was $45,633, according theNational Association of Colleges and Employers January 2014 Salary Survey. That might not seem too bad, but, a salary of $45,000 doesn't mean you actually bring home $45,000.

Why? It's mostly because of federal (and for some) state taxes, as well as other deductions - like Social Security and Medicare - that are taken out. Learn how to calculate your own federal income tax before you get your first check, so you can better budget come payday.

Here's a video that teaches the basics ofcalculating federal income tax. And for those of you that live in a state that also deducts a state tax income, you'll also need to know how tocalculate your state income tax, too.

Set a budget and be honest.
Be honest - really honest - about where your money goes. Don't just figure out how much money you bring home, but figure out exactly where your hard-earned money is going to go. So,set a realistic budget you can actually stick to, taking into consideration all of your expenses - the ones that are necessary, and the ones you control. While setting a budget sounds boring, it is an important step to figuring out how to have money to do the things you really want to do.

First, determine how much you need to pay for your fixed expenses - things like rent, car payments, insurance payments and student loan payments - those things that largely stay the same month to month and will likely take up the biggest chunk of change. Think of this: the average rent across the U.S. for an apartment with two bedrooms or less is$1,231 per month, and in many cities, it can be much more, especially if you are hoping to live in a good location with a lot of action. Add that cost to any loan payments you owe, and you'll start to see where a lot of your money will go each month.

Next, figure out your expenses for things that vary month to month or depend on your usage - things like your cell phone bill, utilities, groceries, and even things like new clothes, entertainment and travel.

This will be tough. It will be tempting to buy expensive clothes for your new job or to pay for nights out with your friends, but you'll need to do that with the money you actually have to spend. As hard as it may be, rank your expenses from most to least important - meaning the expenses you need to pay in order to survive vs. the things you pay for that are just for fun. Do you really need to go to that concert or buy your favorite shoes in three colors? Instead, findways to save on everyday expenses, so that you can afford a nice dinner out with friends or a new pair of jeans without having to sacrifice your cell phone bill, or something equally as important.

Don't fall into the credit card trap.
Yes, you should have a credit card to build your credit profile, but be selective when opening a new card and don't go for every new offer you get just because it will save you a couple bucks up front. And don't be tempted to put that new pair of jeans on your credit card if you don't have the money to buy them today. Unless you plan on paying off the card at the end of the month, the interest charged by your credit card company each month means those jeans will end up costing more than what you paid for them.

Save for retirement...now.
I know one of the last things on your mind when you accept your first job is how you'll support yourself after your last job, but it's crucial to start saving young. According to the2014 Retirement Confidence Survey, less than half (42 percent) of those ages 25-34 are saving for retirement, but it's so important to start saving now.

Why? Because of the power ofcompound interest.

Here's anexample: If you put away $300 each month for 40 years (from age 25-65), you'd contribute $144,000 in savings. But, if you take that same $300 a month savings and put it into an individual retirement account (IRA) that earns an 8% annual investment return each year, you'd end up with over $1 million after 40 years, because of the power of compound interest. Now, say you started putting away $300 a month into that same IRA for just 30 years (starting at age 35): you'd have only $440,000 saved by age 65. See the difference starting 10 years earlier can make?

The best thing you can do is to take advantage of any employer-sponsored retirement plans. Ask your employer if they offer a 401k plan, or equivalent retirement savings plan. They are the easiest way for you to start saving on day one of your new job, as they will automatically deduct money from each pay check before taxes are taken out. Many employers also have programs that will add to your retirement savings by matching a portion of the contributions you make to your 401k. Begin to put some money away now, even if it's just a small amount to start, and you'll have picked up a good habit to keep for years to come.

VisitBetterMoneyHabits.comfor all the tools you need to start an honest and open conversation with your kids.

The material provided is for informational use only and is not intended for financial or investment advice. Bank of America and/or its partners assume no liability for any loss or damages resulting from one's reliance on the material provided. Please also note that such material is not updated regularly and that some of the information may not therefore be current. Consult with your own financial professional when making decisions regarding your financial or investment management.