Your Kid's First Real Job
The financial and benefits decisions most 22-year-olds get wrong, and how parents can help
401k at 22: Why Delaying This Decision Costs $500K
Your kid got the job offer. They're thinking about salary, start date, maybe the commute. They are almost certainly not thinking about retirement. That's the mistake.
Here's the math that makes it visceral: $100 contributed at 22 grows to roughly $2,800 by 65 (assuming 7% annual returns). That same $100 contributed at 32 grows to only $600. Your kid just gave up $2,200 of free money by waiting a decade.
When your kid's employer offers to match 401k contributions, they're offering free money. A typical match is 3-4%: if your kid makes $50,000 and contributes 3% ($1,500), the employer adds another $1,500. That's a 100% instant return. You can't get that anywhere else.
The enrollment conversation with your kid:
- Get at least the full match. If the employer matches 3%, contribute 3%. If they match 4%, contribute 4%. Don't leave free money on the table.
- Invest in index funds, not company stock. A 401k with a brokerage option (like Fidelity or Vanguard) lets you choose index funds. A target-date 2065 fund is perfect, it automatically gets more conservative as retirement approaches.
- Increase contributions by 1% every year. If they can live on their salary with 3% going to retirement, they probably won't miss 4% next year. Let it compound.
- Check the employer match schedule. Some employers require you to be there 1-3 years before the match fully vests. Your kid should know if they're getting "free money" or "money with strings."
Health Insurance: HMO vs PPO vs HDHP in Plain English
The employer hands your kid a benefits book with three health insurance options and expects them to choose. Most 22-year-olds pick the cheapest premium and move on. That's usually wrong.
Here's what matters:
| Plan Type | Best For | Key Tradeoff |
|---|---|---|
| HMO (Health Maintenance Organization) | Young, healthy people who rarely go to the doctor | Lowest premium. But: need to pick a primary care doctor, can only see specialists they refer you to, can't go out-of-network without paying full price |
| PPO (Preferred Provider Organization) | Most people. Balance of cost and flexibility. | Higher premium than HMO. But: see any doctor, don't need referrals, out-of-network care is covered (you pay more) |
| HDHP (High Deductible Health Plan) | Very healthy people with money to put in an HSA | Lowest premium. High deductible ($1,500+). But: can contribute $4,150/year to an HSA, which grows tax-free and never expires |
The HDHP + HSA combo is underrated. If your kid is healthy and willing to self-insure the deductible, an HDHP means they can put $4,150/year into an HSA, essentially a second retirement account that's tax-deductible, grows tax-free, and can be used for healthcare anytime. Some employers even contribute to HSAs. This is powerful.
The First Paycheck Shock: What Lands in the Account
Your kid got hired at $60,000/year. Great! Except the first paycheck will be roughly $2,000, not $5,000. This is the biggest wake-up call.
Here's where the money goes:
- Federal income tax: Roughly 12% for their bracket
- Social Security: 6.2% (mandatory)
- Medicare: 1.45% (mandatory)
- State income tax: Varies, but often 3-5%
- 401k contribution: Whatever they elected (3-4%)
- Health insurance premium: Usually $100-300/month
All of that comes out before the paycheck hits their account. This is called "gross vs net" and it shocks every new employee.
Emergency Fund Before Anything Else: The Math and the Method
Your kid got their first paycheck. They want to save for a car, or pay off student loans, or invest. Before any of that: build an emergency fund.
Why? Because one car repair, one medical bill, one job loss wipes out their financial stability. An emergency fund isn't sexy, but it's the difference between staying on track and derailing for years.
The emergency fund benchmark:
- Phase 1 (Month 1-2): Save $1,000. This covers most small emergencies, broken phone, unexpected flight home, etc.
- Phase 2 (Month 3-6): Save 3 months of expenses. If they spend $2,000/month, save $6,000. This covers real emergencies, job loss, health crisis.
- Phase 3 (Year 2+): Expand to 6 months of expenses. This is their safety net for big life changes.
Where to keep it? A high-yield savings account (4-5% APY right now). Not checking, not stock market. Money market account, online savings, anything liquid and safe that earns interest while they wait.
The Benefits Checklist Most New Employees Never Complete
During onboarding, HR hands your kid a stack of forms. Most 22-year-olds sign the offer letter and ignore the rest. Here's what they're missing:
Why this matters: Most of these benefits are cheaper (or free) when offered through employer plans. Health insurance? Waaaaay cheaper than individual market. Disability insurance? Your kid probably can't even buy it outside of work. This is when to grab these financial tools.