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Are you looking for some college funding solutions?

You may have started saving money for your kids’ college education many years ago – before the 529 plan was even established. If that’s the case, you probably used a Uniform Gifts To Minor Act account.  You should be commended for having the foresight and for your discipline.  But you need to understand that once your little baby reaches 18 years of age – that money belongs to her.  She can do whatever she wants with the money. What should you do now to prepare your “mini-me” to take over the financial reigns?

Steve called me last week with this exact question. He’d been saving for his daughter Amanda’s college expenses since the day she was born.  He’d saved over $75,000 – a nice sum.  Fortunately, Amanda had enrolled in a state college and the $75,000 was more than enough to see her through the entire 4 years – if she managed her money responsibly.  Amanda was a very responsible young woman.  She worked part-time through high-school, got good grades and played sports.  That was all well and good – but she never had $75,000 to play with before.  Steve and Janice were rightly concerned.  They only  had a few months before Amanda went away to school.

If you or someone you know have a similar situation to deal with, it’s not too late.  Here’s what I recommend you do:

1. Go to the bank & open a checking account for your child immediately.

Do this even if your child doesn’t have a steady job or income.  Get them used to writing checks (they’ll take to this like ducks to water…..believe me) and reconciling the account each month. The best situation would be for them to be responsible for earning money to replenish the account.  But even if you give them an allowance, put a fixed amount into the account at the start of every month and do not give them any more money during the month – no matter what. This will dispel the myth that money grows on trees.

2.  Have them track their own expenses starting now.

They can use any number of methods to track their expenses.  The simplest is to use the bank statement and I describe how to do this here. Are they spending more than they have coming in?  Make sure they watch this.

3.  Put them on the payroll.

Put a fixed amount of money into their account to pay for incidentals once they start college.  Let them spend it however they like but make it clear that once it’s gone….it’s gone. Steve & Janice plan to set up automatic transfer of $200 each month for this.  Once they set this up with the bank, they don’t have to worry. It will be on auto-pilot.

4.  Let them pay their own way tuition.

In addition to the $200 each month, Steve and Janice arranged to transfer $5,000 to Amanda’s account at the start of each semester.  Amanda will pay the tuition and room and board out of her own account.  If your child is responsible, it’s a great idea.

5. Arrange a meeting with your financial adviser – without you.

If you have a financial adviser, have your child meet with that adviser alone.  Let them talk about spending, budgeting and investing. Your adviser should reinforce the benefits of all the steps you’ve taken above. If you don’t use an adviser, arrange a meeting with a financially responsible adult that your son or daughter likes and trusts.

6. Schedule progress meetings.

Schedule quarterly meetings to discuss spending, budgeting and investing.  Is your child on track?  Are expenses greater than expected?  Why?  Does anything need to be changed?

7.  Bonus point – Get Duplicate Statements.

Get duplicate bank and investment statements sent to you.  This allows you to keep your eye on things and catch problems before they become disasters.  Also, Steve made it clear that he didn’t want Amanda’s statements sent to her dorm room & he was right.  There is no benefit in having those statements float around the college.  Instead, they set Amanda up with online access to her accounts so she could see what was going on with her money any time she liked.

Keep in mind that if you used a Uniform Gift to Minors Act account, that money belongs to your child once they reach age 18 (21 in some states).  For some reason, they get minds of their own as they get older – I’ve learned this the hard way.  You have to get them to agree to all the steps I’ve suggested above.

It’s not too late to get your kids on the right track. These measures can help them tremendously for years to come.

Have you had any financial challenges with your kids or grandchildren who were college-bound?  How did you overcome them?

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