Preparing your young adult for financial independence

ALLY DONNELLY: Welcome. And thanks for joining Fidelity's "Preparing your young adult for financial independence" webinar. I'm Ally Donnelly, host of Fidelity's personal finance podcast, Money UnscriptedSM. Our conversation today is for anyone who's a parent, guardian, or caretaker of a young adult. For the purposes of this conversation, we're thinking of kids approaching the age of 18 up to 25-year-olds. We'll share the tools and skills for strong family conversations. We're also going to dig into how to help your child learn investing and other critical financial skills to help them build financial independence.

So, what's changed? Well, both the child's path to adulthood and the parent's role look very different today, financially, professionally, and emotionally. Why does it matter? Well, this experience may be different for both of you and confusing to navigate. Our goal is to help parents prepare their young adults for financial independence, and that could mean very different things for different families.

To help us along, I'm joined by Mary Brennan and Ken Hevert. Would you both introduce yourselves? And, Mary, why don't you kick us off?

MARY BRENNAN: Great. Hi, Ally. I'm Mary Brennan from the Fidelity Center for Family Engagement. We're a team that's passionate about helping families talk about their financial well-being. And I've been fortunate enough to be alongside my young adult children as they've launched their financial lives. So, really excited to be here with you today and maybe share some of those experiences.

ALLY DONNELLY: Oh, we're happy to have you. Ken, welcome to you.

KEN HEVERT: Hey, Ally. Thanks so much for including me in this really important conversation. I've spent nearly 30, 40 years helping to develop products and services and solutions and investment strategies to help families and individuals achieve some level of financial security. I've also experienced the ins and outs of guiding young adults through this phase. And, actually, now that I'm a grandparent, I feel like I'm doing it all over again. So thanks so much for including me.

ALLY DONNELLY: What a great opportunity. Before we dig in, I want to say that Fidelity does not give tax or legal advice. And nothing we discuss today should be interpreted as tax or legal advice. The information we provide is going to be general in nature, and it may not apply to your situation. So if you have tax or legal questions about your specific situation, we encourage you to talk with your attorney or tax professional. If you have a question, share it in the chat. We have a team working to answer your questions, and we'll share out resources from today's conversation.

Mary, "young adults," it feels like such a broad term. So give us some insight into this group and their parents.

MARY BRENNAN: Sure, Ally. I love this question. At FCFE, we think a lot about the journey families go on throughout their financial lives. And we use the concept of life stages as a way to reflect and connect more deeply about their experiences. So when it comes to young adults who are launching into life, we tend to think of that stage as kind of “becoming independent.” And it's really interesting to think about what it means for everyone when our kids aren't necessarily moving out or starting their careers right away.

But look, that shines a light on the shifting role parents can play as they transition from a provider to, maybe, a coach. And a coach is really someone who comes alongside their kids and helps them establish their independence.

ALLY DONNELLY: Yeah. To that coach end, how can parents think about their role in a way that will help their children build their own independence?

MARY BRENNAN: So one thing for families to remember is that they've never been through these experiences before. It's the first time for the adult child, and it's also the first time for the parents. And when we keep that in mind, we're more likely to have a bit of a learner's mindset or maybe even explorer's mindset. It makes us more comfortable with uncertainty, and we can focus on learning together.

So me, being a 51-year-old who's trying to partner with my adult children as they become independent or maybe even start their own families, it's just new to me. So just as much as my kids are developing, I'm developing too. It's happening in parallel, if you will. But look, I think when we can stay focused on growth and change, we're really more able to connect, maybe be patient with each other a little bit more, and then, ultimately, just enjoy the process of learning together.

ALLY DONNELLY: Yeah. Today's young adults are facing some tough realities. They're part of some real economic, behavioral, and cultural shifts. So I want to walk through them. The reality number one—economic shifts. There's interesting data here when it comes to today's job market for young adults, and might not be any surprise, but the unemployment rate for 16-to-24-year-olds reached 10.8% last year compared to 4.3% of the population overall. And a record 25.2 million US adults under the age of 35 lived with their parents in 2025. That's about 1 in 3 young adults.

Now, most of these young workers are delaying their flight from the nest due to an affordability crisis, pinching the wallets of everyday Americans. So, Ken, when you hear these stats, what do you think?

KEN HEVERT: I think it's really easy to see and hear these stats and think that something terrible has gone wrong, but I really don't think that's the case. Every generation faces a whole new set of economic challenges—domestic, global, social challenges. And, in many cases, they've always felt unprecedented, right? Like nothing like this has ever happened before.

But I think what is constant is that the goals remain the same. We all are striving for some level of financial security. We are all seeking to build a desirable lifestyle over time. And so how do you navigate these? It comes down to the behaviors and the basic habits. And it's a great opportunity for us to coach our young adults and to teach our young adults about what they control and what they don't control, to help them think in terms of time-horizon-based goals and how they can pursue those goals. So, yeah, I mean, times are—we all go through difficult challenges. But we're all trying to achieve the same thing at the end.

ALLY DONNELLY: Yeah, those are great points. All right. Let's move to the second reality—behavioral shifts. So when it comes to money, young adults have easy access to credit. And we're seeing some interesting investing trends. So Gen Z is opening credit card accounts at higher rates than any other generation. They often believe speculative investments will help them reach their financial goals more effectively than traditional methods like conventional stocks and bonds. What do you think is behind that, Ken?

KEN HEVERT: Well, I think there's this one really, really big sort of thing that hangs over, which is the desire or the need for young adults to achieve instant gratification. And I think in that pursuit of instant gratification, there are a lot of hidden mistakes that we want to try to help our young adults avoid. So there's no question this generation perceives that having a strong credit score is the key to unlocking their financial freedom. And there's a lot of truth to that, right?

You want to have a good credit score. You want to be able to secure a loan when you're reaching one of those big milestones, or even the ability to get approved for that dream apartment that you're really trying to get for yourself, or with your friends, or a partner. The thing that people need to really help guide their young adults towards is you don't want to have so many credit accounts open that you start to lose track of them, that you start to lose track of the payments that you have to make, that you start to lose track of which of those accounts has the highest interest rates, because it's good practice to try to pay off the accounts with the highest interest rates first. So, number one, it's OK to want to be building a strong credit score. But you don't want to pursue that at the risk of making mistakes that, in the long run, can actually hurt you and take a long time to overcome that.

As it relates to risky investments—again, I think, over time, what constitutes a risky investment, what constitutes speculation has certainly shifted. And I think that one of the lessons that we can teach young adults is this notion of bucketing your money. If you bucket your money between money that I can lose and, therefore, I can take a lot of risk with, I can be curious, I can explore, I can try new things, and a bucket of money that I can't lose, it really helps the young adult start thinking a little bit differently about how to apply risk-based investing versus more conservative or longer-term wealth building.

ALLY DONNELLY: Yeah. Yeah. Let's look at cultural shifts, reality number three. There seems to be a longer delay with young adults reaching financial independence. And that widely means you could support yourself without your parents' help if you needed to. So the average age Americans say they achieved or expected to achieve financial independence is 37. I mean, 37 is almost 20 years after high school graduation. So I would love to hear both of your thoughts. Ken, I feel like you're such a good parent in this lens.

KEN HEVERT: Well, thank you for that. I think what I've learned is that you don't want to make comparisons to friends or family members. You don't want to make young adults feel bad. And you also, even though you may be stressed about their situation, you don't want them to feel that stress. I mean, this is an opportunity to really try to guide the young adult towards what they're trying to achieve.

Now, there are definitely milestones that we want to make sure that our young adults are aware of. And there's many of them. One that we don't talk a lot about until it's right upon us is the fact that many kids will stay on their parents' health insurance plan as long as they can. What a lot of people don't realize until it's right upon them is that you can no longer be on a family plan at the age of 26.

And so that's one of those practical milestones. It's a great opportunity for parents and young adults to talk about what's your plan going to be. And I'm sure all of us got this guidance or advice from people in our lives as we were growing up—you want to get a job with great benefits. It's not cliché. It's one of the ways to secure good health insurance. And there's other ways to do it as well. But I'm just using that as an example because there are real milestones that we want to help our young adults in our lives be aware of and to achieve.

ALLY DONNELLY: Yeah. You don't want to say, "Have at it." You also need to help them form. So I love that—Mary's coach example. With many young adults relying on their parents for support longer than previous generations did, what do you say to parents who want to help their children financially, not saddling them with so much, but without jeopardizing their own retirement security?

KEN HEVERT: Yea. So, again, let's start with the young adult, and just helping them think about the big picture of their money, and how they're spending the money, and where they're putting their savings. And we talked to people who are transitioning into retirement about this same concept, which is essential expenses versus discretionary expenses—must haves versus nice-to-haves.

And I think that if we can introduce that concept early on, then young adults will start to understand. And so, to your question, Ally, about what should parents be thinking about, we need to make sure that our young adults realize that we can't compromise our own long-term savings goals, our retirement goals.

And we learned a long time ago you can't take a loan out for retirement. And so, often, I'll say to my own kids, "Hey, listen, unless you want us to move in with you later in life, we are prioritizing building that nest egg. We don't want to be a burden on you." But, anyway, bringing it back to this conversation, you just have to strike that balance, right?

You need to be able to stay true to your own long-term goals—building up your nest egg, having a good retirement, not being a burden on your kids, while at the same time trying to figure out and drawing that line in the sand around when and how I'm willing to help my kid.

MARY BRENNAN: So good, Ken. And you're so right—we can't take a loan for retirement. And so thinking about this frame of really taking longer, though, to reach financial independence, this is a time that we can find ourselves still “parenting” our young adults versus coaching them. So, for example, if we have a child, an adult child, who's still living at home, say, in their upper 20s, maybe even 30s, then we start to view them as lazy or “failing to launch.” If we have those thoughts, that's actually going to shape how we interact with them. And it's important to realize that how we interact with them actually impacts the way they feel about themselves.

So one thing we can do is to try to cultivate positive attributions about our kids. And those are really the beliefs that we hold about them. So if we take into account all these new realities we've just talked about that they're managing day-to-day, and we're practicing having these kinder, gentler beliefs about them, it helps us stay in relationship and helps us cultivate that coaching role that they really need from us at this stage.

Look, we all want our children to be independent. And there are lots of ways they can build independence that, frankly, look a lot different than when we were kids. So just really being open and keeping track of how our thinking is actually shaping how we are interacting with our kids, that's so important.

ALLY DONNELLY: Yeah. Those are great points, Mary. Thanks. Ken, we're seeing some realities for young adults when it comes to managing money. Young adults may not have jobs that support their financial goals, so there's some disconnect there. New digital platforms make it easier than ever to take financial risks—you talked about speculation before—often without fully understanding the consequences. So give us your thoughts here.

KEN HEVERT: Well, Mary's point on coaching is very, very well taken, right? This is not about trying to make your adult child or your kid feel bad about their situation. We are definitely taking on the role of coaching and to try to help them get better.

And I think all of us, throughout the course of our lives, have felt that there have been moments, and maybe our whole life, when our income didn't really support all the things that we wanted to do. And, over time, we learned that we need to reset our expectations, and what we should really be focusing on, and what is most important. At the end of the day, it's a balancing act.

And, regardless of what career our child chooses, the balancing act is between their job, their lifestyle, and building wealth, and just, like, helping people understand that there's trade-offs that you need to be willing to make. And it's not a onetime trade-off. These things happen over and over and over again. And so this idea of resetting expectations, I think, is really important.

You mentioned digital platforms. And I think that digital platforms have done, I think, some really wonderful things to enable young adults to achieve financial security and financial success—for example, the ability to more easily monitor their accounts, the ability to try new forms of financial services, to be able to do a better job of managing their debt, et cetera. So the digital platforms have actually been, I think, great for young adults. They can automate more than we were ever able to automate when I first started to try to figure out the balance between saving, investing, and spending.

ALLY DONNELLY: So, Mary, if we're trying to talk with our kids about having some financial accountability without shaming them, how can parents start to navigate these conversations?

MARY BRENNAN: Great question, Ally. So as they learn to manage money, our kids need space to have a range of experience. They're going to make mistakes. They're going to be impulsive. They're probably going to make decisions and regret them. Hey, they might spend their monthly budget in just one week, or maybe they run up the credit card debt.

Or, on the flip side, maybe they're so anxious, actually, about the future that they aren't spending at all. But this is all part of the learning process. And the question is, will they talk to us about it so that we can help guide them? And one way we can make sure that happens is to reflect and ask ourselves, what am I setting up in my relationship with my child? Or, perhaps, how is my child experiencing me?

To be a learning partner, really, for our children, we have to provide the safety, the love, the support, all these things for our kids to want to talk to us about their experiences. We believe it's our job as parents to really create those conditions for them to talk with us about it, so that we can play that role as a resource through time in their development.

ALLY DONNELLY: Yeah. You talk about them talking to us about their experiences. What do you think about parents sharing their own past experiences, maybe some hefty mistakes and views around money management?

MARY BRENNAN: Absolutely. Sharing is a really important part of helping our kids really make sense of their experiences. So when we talk about our own financial journey, in the right time, in the right way, it can be really valuable for them. But, Ally, the key is to not really let your story dominate their experience. And look, every conversation about money or wealth is just a chance to keep practicing the skill of, frankly, just talking.

ALLY DONNELLY: Yeah. And I'd imagine that transparency could stick around once you develop—it could be the model for all your conversations.

MARY BRENNAN: Absolutely. We try to be transparent in an age- and developmentally appropriate way so that as we go through time, we're getting to talk about more complex things through our lives together.

ALLY DONNELLY: That's terrific. Ken, I want to turn to the practical. What are some topics that parents should cover with their young adults at this point?

KEN HEVERT: Yeah. And maybe they're boring basics, but they're the basics and they're the core habits that we have to teach our kids and our young adults. So I'm going to list 5. They're very straightforward. But in the end, they all matter.

The first one is we should encourage our young adults to open their own checking and savings accounts. Just learning how to separate their money from other people's money is really, really important. Number 2, a very simple budget. None of us like to budget. Young adults definitely do not like to budget. But, again, if we give them a very simple framework—and we like to call this the 60/30/10+15.

Basically what it means is we talked about essential expenses. You want to have 60% of your budget against the things that you must have, 30% against the things that are nice to have. You want to be able to build an emergency fund. And then, to the extent that you have an opportunity to save for long term, like retirement, then you want to be able to do that as well.

Emergency funds matter a ton. Strive for $1,000 in an emergency fund. And we often talk about emergency funds being 3 to 6 months’ worth of living expenses. When you're just starting out, having $1,000 goes a really long way—vet bills, fixing the car, whatever the case may be. And then I would say the fourth one is that if your kid has the opportunity to take a job where there's a 401k or some retirement savings benefits, you should always take the match. You should absolutely always take advantage of employer contributions.

And if your kid is doing a freelance type of job or joined the gig economy, they're still eligible to open a Roth IRA. So those are really the 5. I kind of shortcut to number 5, which was to try to keep building up that emergency fund, because that's the thing. You want that money so that you don't have to borrow if something comes up.

ALLY DONNELLY: Yeah. Yeah. I think about talking to my kids about the 60/30/10/15 rule. I don't know. I'm hoping for it, Ken. I'm hoping for it. Mary, how can we think about our young adults and help them think about the relationship that they might have between spending, saving, and investing for the future? Kind of building on what Ken's talking about.

MARY BRENNAN: Sure. Well, one powerful way is to use our "today/someday" conversation cue. And we can really invite them to talk about their today needs versus how they might envision their someday wealth. And then you can use the practical tools that Ken is talking about to help them really take action in managing their finances. But, really, budgets are about today spending. And investing is about someday wealth.

And by talking about it in these terms, it can really help your child with this kind of developmental view of their financial life through time. It's also a great way to really help them make decisions. You can ask a question like what decisions feel important to make today? And what decisions feel like maybe you can put off until someday?

KEN HEVERT: I think it's a really great point that you're making, Mary. In my family, we try to use every opportunity possible every day to help guide our family and our kids through those decisions they have to make.

ALLY DONNELLY: That's great. Mary, you talked earlier about that coach role for parents, as we talk about helping young adults manage finances and build wealth. Again, sorry to bring it back to me, but I think about my soon to be 18-year-old and then my late 20-something nieces and nephews—so those are 2 very different ages and stages. How do I figure out how to approach the conversation to account for that difference?

MARY BRENNAN: Yeah. Well, I think the coaching role we play depends on the situation, to your point there. Let's see—one way is we can be hands on, such as helping them set up accounts. As a mom myself, one of the biggest highlights of my experience was actually helping my young adult children set up their first investment accounts.

What happened, Ally? I had a little bit of extra money, and I shared this vision for helping them do something that would really benefit them through time. Frankly, I actually thought they were both going to drag their feet. But, to my huge surprise, my son immediately opened up his account on his own. And then, shortly after, my daughter called me, and we went through the process together. They both did it just in very different ways.

The second way we can be a coach is to be supportive by, say, encouraging contributions. Kind of picking up on what Ken said earlier, I helped my kids see that saving or investing a little bit now often results in a whole lot more later. So whatever career path our kids choose, they'll want to make major purchases, probably, at some point—maybe even they'll want to raise a family and hopefully, someday, retire. So the actions we take today can really set them up for better outcomes in the future.

And then, lastly, the third way we can think about being a coach is, really, to be an advisor to them and in their decision-making process. And this one's important and an area to be careful. As parents, we know much more than our kids. And there are moments when the best way to support them is to offer insights. We just really need to be thoughtful about how we offer them.

So if we are led by our children's interests and needs, then our perspectives can be offered in support, really, of their financial journey. The key here, though, is to avoid speaking in absolutes. We don't really know what's exactly best for our kids, but we just need to offer our best thinking as opposed to telling them what to do.

And here's what it might sound like, Ally. I might say, hey, son, one thing you might want to consider is setting up automatic withdrawals so you are saving every single month. So see how I did that? I did a little bit of creating space there.

ALLY DONNELLY: Well, yeah. You're such a good parent. I'd be like, "And do it right now while I'm watching." What resources does the FCFE have for parents who might need help, like me, with some of those different types of roles?

MARY BRENNAN: So glad you asked. At FCFE, we say that family conversations are a skill-based sport. So we've developed a wide range of skills, tools, frames, and conversation cues that can help parents take that intentional approach to having conversations with their young adult children. I'll give you an example.

One of the conversation cues we teach is called "process questions." And it's a really powerful way to cocreate your partnership with your child. You simply ask an open ended question that invites your child to give feedback about the process. You might ask something like, "Hey, how do you want me to be involved in this decision?" Or maybe, "Hey, how are you feeling about this conversation we're having right now?" Or even something like, "Hey, I've been thinking about your situation. I might have some thoughts that are helpful, but what's good process for me to share some of those thoughts?" See how it's really inviting for them? These are all ways to connect to what's meaningful for them and, really, ensure they have voice into how you're involved with the partnership.

ALLY DONNELLY: Yeah. Those are great openers. I love those. As we think about helping our young adults with their relationship between investing and wealth, how can we help them that out?

MARY BRENNAN: So at FCFE, we define wealth as choices and decisions when you have more than enough to sustain yourself. Now, young adult kids tend to really know what it feels like to be on a tight budget, i.e., with a part time job. And they can also imagine a future self who has some wealth to maybe create some options, even if it's just around the way they're kind of having a lifestyle or living life.

So when we talk about saving, sometimes that can be a little passive, and we can't really see where it's going in the future. But investing is actually a fun opportunity because it feels more action-oriented, right? You're learning as you go, and you're seeing results that start to build that wealth.

ALLY DONNELLY: Excellent. Excellent. Ken, help us see the opportunities to have these conversations. Like, how do we figure out when's the right time?

KEN HEVERT: I think it's really important to be comfortable and willing to discuss your own experiences with your kids and to be able to share with them those different life moments that you've had to go through yourselves. So you've got to have your radar up, because it's those real-life, real-time moments that are the invitation, if you will, to start having those conversations.

For example, your kid gets an offer letter. And so, naturally, we want to celebrate that. We want them to feel great about it, inquire about the terms. Do you have benefits? You have retirement savings? Does your employer offer a match? Yeah, it says here they offer a match. Do you know what that even means?

So these are these opportunities to be able to use real life moments that are worth celebrating, but also an opportunity to help guide your kid through that. And I can tell you just from my own experience, when you find out and understand what a match means, that means that you're giving up some of your pre-tax income, right? So your paycheck is going to be smaller.

And I think it's really difficult for a young person to be like, why would I want to take home less money? And so the guidance that we've provided to our 2 sons, as they go through this experience themselves, has been try it first. We totally understand you want to take home more money, but try to do the payroll deduction, get the free money from your employer, start building up some long-term wealth, and then you can adjust from there. But if you don't do that, you're going to miss out on years, very important years, of investing in building wealth over the long term.

ALLY DONNELLY: Yeah. Yeah. It's like free money. Ken, what are some best practices to try and instill in our kids when it comes to future money management?

KEN HEVERT: One of the questions that I just ask over and over and over again is, "Why are you investing?" A lot of times the question comes to me, which is, "What should I buy? What should I invest in?" And I always answer that question with, "Well, why are you investing?"

And that kind of opens up all the other things that are really important, right? And so one of the things that Fidelity practices is what we call the 3 A's. So you want to be able to contribute and invest the right amount on a regular basis. You want to be able to choose the right type of account, depending on what your goal is. If it's long-term retirement, then, naturally, you want to use some type of an IRA. If I'm trying to save some money for a near term, it's a different type of account.

And then the asset allocation. Asset allocation matters a ton, right? You want to make sure that you're balancing the mix of stocks, bonds, and cash with your time horizon and the goal that you're trying to make. Then it comes down to actually making the investment, whether it's buying a stock or setting up regular contributions.

You've got to get in the market, and you get in the market through buying. And then, ultimately, you want to be able to monitor your investments. You don't just set it and forget it. It's convenient to do that. But because you're going back to the question that you just asked, "Why are you investing? For what time horizon? What are you trying to accomplish?" it's really important to make sure that we teach our kids how to monitor whether or not those investments are actually helping them achieve the goal that they set out to.

ALLY DONNELLY: Yeah. Talk to me a bit more about investing early, especially when "long term" may not be a priority for our young adults.

KEN HEVERT: Well, this is a really simple one, right? The longer your time horizon, the better off things are. And the reason is because you can take more risk over the course of a long period of time. You can try different asset classes within the context of a diversified portfolio. So one of the greatest gifts that a young adult has, among many, is a long time horizon.

ALLY DONNELLY: So I want to see some brass tacks there. Bring that to life a bit with some numbers. What could that look like?

KEN HEVERT: Sure. So we've got this great hypothetical illustration. Investor A starts investing at the age of 25. Investor B starts investing at the age of 35. They both invest $5,000 annually. They both invest in the same portfolio, assuming a 7% average annual return.

But just look at the difference, OK, at the end, that Investor A has as compared to Investor B, just by starting 10 years earlier. Naturally, investing over a long period of time involves some risk. Your money can go up and down. But I think that this illustration shows the power of starting earlier.

ALLY DONNELLY: Yeah. How can parents help young adults prioritize investing in their future and take advantage of time and compound growth?

KEN HEVERT: Again, it kind of comes back to having your radar up and knowing when those moments are to have that conversation. In some cases, it is when your kid just first starts earning money. They may not be out of college yet. They may not be in their first job. But, again, it's like these moments when they start earning money or they start expressing interest in not trying to find the fast path to making money on their money, but actually start to get very curious about, how do I actually start to build up some wealth over the long term? So any of those moments where your adult child or your kid starts to express interest in how do I start to build money up for the future, those are the opportunities to just reinforce those principles that we just talked about.

ALLY DONNELLY: Terrific. We talked about this earlier, touched on it earlier, but young adults are increasingly exploring things like investing in crypto or meme stocks and prediction markets. So how can parents encourage a curiosity, a healthy curiosity, while also helping their kids understand risk and build a solid financial foundation?

KEN HEVERT: Absolutely. So, first of all, I think it's great when a kid or a young adult expresses curiosity or interest in the financial markets. And I think it just means that they know that they can find a way to make money on their money. The thing that we need to help them understand—again, it kind of goes back to that money that they can lose versus money that they can't lose, and being able to help them sort that out.

And a term we use all the time is buckets. Another term that people have used over time is creating envelopes. But what's different now as compared to 10, 20, 30 years ago is that a diversified portfolio can actually balance speculative risk investments with conservative investments. But time horizon matters so much, Ally, right?

So if the goal that your kid has or your young adult has is they want to buy a new car in a year or they want to be able to fund some other type of asset that they want to get to over the next 12 to 18 months, that's really a very short time horizon. And so the risk associated with being overly speculative in such a short period of time can really go back to hurt them.

ALLY DONNELLY: OK. So the message isn't don't do it, but understand the risk.

KEN HEVERT: Exactly. Yeah. We never want to say, "Don't do it," right? We just want to help them find a balanced perspective on these things. How does taking risk work with being conservative, work with longer-term wealth building?

ALLY DONNELLY: Terrific. I want to talk to you both about potential investing accounts young adults could consider. Ken, I'll start with you.

KEN HEVERT: Well, there's a broad range of accounts that kids can consider. They can be their first brokerage account. It can be their first high-yield savings account. Once they have earned income, they can start to save in a retirement account. And then through their employers, they have access to accounts.

We've always believed that, yes, there is a hierarchy in which you want to participate in these things. But at the end of the day, being able to utilize all of the different accounts that are available and use them in a way that's going to help you achieve both your short- and long-term goals is really what matters.

ALLY DONNELLY: Mary, how about for you?

MARY BRENNAN: Well, in my experience, there's a great opportunity that comes from whatever work situation your kids end up in. So, for example, my daughter is in musical theater. She works in a context where there's no 401(k) or retirement savings program. So I helped her understand that she would actually need a Roth IRA because, frankly, she's on her own to save for retirement.

Now, my son, actually, he's in a different situation. His employer offered a 401(k) program. So my focus there was really helping him make sure that he was doing those contributions and also helping him think about how, for example, an HSA, in relationship to his employer-sponsored health care plan, was a great idea. Look, in both cases, I was trying to help them learn throughout their actual experiences.

ALLY DONNELLY: Mary, what are you thinking about parents normalizing financial conversations with their young adults?

MARY BRENNAN: Well, this idea that both Ken and I have been talking about is really the idea of normalizing dialogue about money and wealth. Parents talk to their kids all the time, but there's a tendency to think that talking about financial topics needs to be different or maybe more serious, right? And that mindset can really get in the way of the conversation. So it's important to make talking about money and wealth as normal as talking about any other topic, i.e., "What are you doing this weekend?" and then "How's your investment account coming along?"

ALLY DONNELLY: All right, so what are some specific actions and conversations parents need to take with guiding their young adult when they turn certain ages? So what are the ages, and when should they have them, Ken?

KEN HEVERT: Yeah. Let's just use 3 as an example—18, 22, and 26, OK? At the age of 18, for any kid for whom you've set up a custodial account type of arrangement, at the age of 18—or, depending on the state, it could be a little bit older—ultimately, those accounts need to be transferred to the ownership of the kid. And at that point, they actually have control over what happens with that money—the investment decisions, how they use that money, et cetera. And I think it's really important to use that kind of milestone as an opportunity to reinforce, with your child, with the young adult, why you set that account up to begin with.

Age 22—typically, when a child might graduate from college or trade school. They might also have student debt. Those are great milestones to start introducing using the idea of thinking about the importance of benefits, the importance of employer-sponsored retirement savings, the importance of actually starting to think about that 60/30/10 budget—how am I going to divide up this money? How do I bucket it the right way?

And then, again, at age 26, we talked about this much earlier in our conversation, they can no longer participate in or be covered by a parent or a family health insurance plan. So they've got to figure those things out. And, again, the power of having these age-based milestones is that they are real opportunities for us to guide our kids in terms of these are the things you need to be thinking about.

I also want to just add in—not everybody is an expert in this stuff. And I think it's really meaningful to be able to acknowledge that with your kids, as Mary's been pointing out all along. The role we play is to be supportive, to be an advisor, to be a guide, to be a coach as we go through these milestones.

ALLY DONNELLY: What a great tee-up for your next question, Mary. Any watch-outs as we approach these conversations?

MARY BRENNAN: Yeah. So one thing that parents always ask us about is what do they even say when they're hesitant to talk? Because they feel stuck. They don't even know how to start the conversation. So instead of letting our worries keep us from talking, we can actually turn them into a conversation starter.

And a great way to do this is use the skill of process out loud. And the way to do that is share what you're feeling and share what you're thinking in a way that invites someone into a conversation. You could say, for example, "Hey, I'm a bit hesitant to talk about the accounts that we set up for you, but I think it's really important for you to know about them. How would you like to talk about it?" And then, Ally, you're off to the races.

ALLY DONNELLY: OK. Switching back to actionable steps for a second, specific to 18, Ken.

KEN HEVERT: Yeah. Let's start with the custodial account again, as I talked about earlier. At the age of 18—and, again, depending on some states, the age of maturity might be a little bit older—the ownership of that account has to be transferred to the young adult. Fidelity can help with that. Whoever you're working with as the provider of that custodial account can help with that.

But, again, it's another one of these opportunities and these moments to share with your child, the young adult, why you set that account up to begin with. Some can be general purpose. Some could be very specific to helping them get a head start saving for retirement, for education purposes. But it's OK to let them know, what was your hope and dream when you set this account up? And to let them know that we're kind of counting on you to continue advancing that and pushing that forward.

ALLY DONNELLY: Yeah. So the account must be reregistered in your child's name. And, more importantly, the child controls the money, right?

KEN HEVERT: 100%.

ALLY DONNELLY: Yeah. What happens to a Roth IRA account for minors once your child turns 18?

KEN HEVERT: It's actually very similar. It becomes the child's. Well, the child becomes an adult, and, therefore, it's all theirs. And it acts as a regular Roth IRA. And so the way the Roth works is that they can begin to take withdrawals of contributions that they made. And they can be made without tax penalties, provided they are used for certain qualified expenses.

One of the nice things about a Roth IRA is that it's not just for 40 years from now. A Roth IRA can be used to help pay for educational expenses or a first time home purchase. So those are the things that are important to know about Roth IRAs.

ALLY DONNELLY: Terrific. Mary, give us some things that parents can help young adults prepare for financially and life decisions that they might not be thinking about yet.

MARY BRENNAN: Ally, as adults, we can sometimes default to thinking that a topic—like, take, for example, a health care proxy—that it only applies to actually older people. But it's really not the case. Our kids are thinking about their future. And they will benefit from really talking about a wide range of financial related topics, whether it's health insurance, renters insurance, disability coverage, health care proxies, or even beneficiary designations.

Talking about these things with them in a way really helps them practice seeing the whole of their financial lives. And it sets up a wide range of opportunities for you to talk to them now and through the future.

ALLY DONNELLY: All right. So how can parents help their kids think about how to approach the decisions?

MARY BRENNAN: Well, financial topics like custodial accounts are a great opportunity for the voice vote conversation cue. When your children become legally responsible for the money, they're the ones with the vote. Yet, they are also young enough that it's really valuable for them to keep you by their side as they make decisions.

So when you and your child can talk about when you will have voice and when you will have vote, right, it creates safety around talking and sharing different perspectives. It's a really great way to give your child, really, the space that they need to develop their independence, while giving them the option to really access your knowledge and your support at any time.

ALLY DONNELLY: Oh, that's great. I'm sure parents will want to help their young adults get started as soon as possible. Ken, any suggestions?

KEN HEVERT: Yeah. As we've discussed, there's a range of accounts that should be considered, and learned about, and thought about—all, of course, depending on the individual situation and their goals. And so we suggest going to Fidelity.com and our family referral area. And we'll provide the education and the guidance that they need to sort through which accounts are the right ones to use in what situation.

ALLY DONNELLY: Terrific. As we start to wrap up our conversation, Mary, Ken, what are a couple of things you hope folks leave with today? Mary?

MARY BRENNAN: Yes, absolutely. First, think about how you can show up in the relationship so that your adult child will want to talk with you. You've got to be mindful of how you're entering that engagement. The second thing might be start early, really helping them see the difference between money, which is kind of a today topic, as we were talking about with the budgets, and then longer-term wealth, which is more of a someday topic.

And then, lastly, always focus on growth and change. The best way to help your child prepare for financial independence is to be a learning partner and involve them in financial processes whenever possible.

ALLY DONNELLY: Ken, what would you say?

KEN HEVERT: I think it's really important to just pay attention, have your radar up, and really look for those moments and those opportunities to help your young adult think through how best to achieve financial success, regardless of what goal they have, whether it's about credit cards, and building their credit score, or experimenting with new types of investments, or how much they should be setting aside for retirement. So, pay attention. Have your radar up all of the time.

And I think that the other thing that we want to make sure that we are doing is having our young adults and our kids take the lead on trying to research and figure these things out. It's really important that they have the opportunity to learn about the investing side, the account side. And we can be there to support them and guide them, but we should really encourage them to take the lead on doing their own homework.

ALLY DONNELLY: Terrific. Ken, Mary, thanks to you. And, parents, we hope this conversation has been helpful as you work with your young adult to build their financial independence. We have terrific resources you can access in the downloadable deck to help you both prepare for this next phase of life. Thanks for joining us.

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