It’s May already and you know what that means… Pomp and Circumstance playing and kids in their caps and gowns graduating from high school and college and moving into the next phase of their life. If your child is graduating from high school, we’ve included some tips to get them prepared for making smart financial decisions when they leave for college. If your child is graduating from college and returning home to live with you, we’ve also included some tips to make sure they don’t become a permanent house guest (unless you want one).
Tips for Children Graduating High School
If your child is going to college in the fall, you have the summertime to work with them to make sure they have a basic understanding that money doesn’t grow on trees and they need to be careful about their spending habits. If you haven’t done so already, help your child establish a realistic monthly budget and work with them for the next few months to track their spending and compare it to their budget. You can utilize a spreadsheet or for more tech savvy parents and kids, a budgeting app. You should suggest that your child read a personal finance book as part of their summer reading. It doesn’t have to be complicated, just something that covers the basics of budgeting, saving, and understanding how loans work.
If your child has some free time in the summer before they take off for college, consider having them get a summer job. Not only does this teach discipline, it can help them save for expenses they might incur when they get to college. For example, you may be willing to pay for tuition and housing for your child, but any entertainment expenses they incur throughout the school year are their responsibility. Make it clear that the money they earn from their summer job needs to last for the school year and that’s why they need to budget properly.
Lastly, tread carefully when allowing children to apply for credit cards or adding them as an authorized user on one of your cards. While credit cards can help establish credit in your child’s name, many children are not mature enough to understand the consequences of not paying as scheduled. You could consider secured credit cards and see if they may be a good fit. These cards require a deposit that would be used as collateral if there is a default on the payments. Otherwise, you can make payments as scheduled like a regular credit card. Understand the fees and features of these types of cards and understand that some report payment history to the credit bureaus while others may not. Lastly, make sure you apply at a reputable bank and understand the Annual Percentage Rate (APR) associated with the card.
Tips for College Grads Moving Back Home
If your recent college grad is moving back home, make sure you have a formalized plan in place either prior to them moving back home or as soon as they move back home. This plan should be in writing and lay out all rules, guidelines, responsibilities, and time frame for your child to move out. Consider having you child contribute to maintaining household upkeep, either through paying you rent or through household chores. Also, make sure to enforce house rules. For example, if you don’t want your child coming home at all hours of the night, tell them that if they want to do that, they can rent their own place. Lastly, having a set time frame and sticking to it is probably the most important aspect of your written agreement. Often times, parents think their kids are just going to live with them until they find “their dream job.” What parents thought might be a few months may turn out to be a lot longer than that. You should have a clear move out date (dream job or not) and stick to it, unless, of course, the plan is to let them stay indefinitely.
There is no question about it…everyone wants to help their kids make responsible and smart financial decisions. Helping them and giving them guidance during this time of transition can, hopefully, be a good way to encourage them to make those good choices.
Gary E. Croxall, CFP®
Registered Principal of LPL
Soren E. Croxall, CFP®
Registered Representative of LPL
Securities and Advisory Services offered through LPL Financial, a Registered Investment Advisor. Member FINRA & SIPC. LPL Financial and Croxall Capital Planning do not provide tax or legal advice. The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.