School is just getting under way in many parts of the country. If you have a child that is about to start or continue college I have some sad news. There still aren’t any good courses on money management for young adults. You’re the one who has to school your brood in the money department.
Getting a good degree to set up a great career is wonderful but it ain’t enough. Even if Junior pulls down big numbers after graduation, if he blows the entire pay by Tuesday, what’s the point? Money management skills are an absolute requirement. Don’t leave this to chance.
You probably learned money management all by yourself like most people. But think about all the mistakes you made and the expensive learning curve you had to experience. Even if you have a less-than-perfect understanding about finances, you should help prepare your kids.
Here’s how:
1. Go to the bank and 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. This is the best way to make sure they don’t graduate with debt. Encourage them to develop some entrepreneurial ideas and get something of their own going. 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. Tell them they must pay all their own bills and if they run out of money before the end of the month, that will be just too bad. 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. There are many good programs out there and many are free. It doesn’t matter how your child tracks his/her spending. It just matters that they do it and make sure they spend less than they bring in.
3. Put them on the payroll.
Put a fixed amount of money into their account to pay for incidentals once they start college as I suggested above. Let them spend it however they like, but make it clear that once it’s gone…it’s gone. Set up automatic transfers each month for this. Once you set this up with the bank, you don’t have to worry. It will be on autopilot. 🙂
4. Let them pay their own tuition.
This comes out of the “payroll” account you set up. Calculate how much your child will need for monthly expenses and annual costs (like tuition and books) and figure out what their average monthly needs are. Then let them take care of themselves financially. This lesson could be the most valuable thing they learn in college. For example, if their total cost is $6000 for the year, deposit $500 into their account each month. Tell them they can spend it any way they like….but that you won’t be putting in any more for school. This worked wonders for my kids. Try it….you’ll like it.
5. Arrange a meeting with your financial advisor – without you.
If you have a financial advisor, have your child meet with that advisor alone. Let them talk about spending, budgeting and investing. Your advisor should reinforce the benefits of all the steps you’ve taken above. If you don’t use an advisor, 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. And don’t send your child’s statements to the dorm room. There is no benefit in having those statements float around the college. Instead, set up online access so you can both see what is going on with the money.
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?
Caroline says
These are some great ideas. I wish I had been smarter with money in college but we of course, live and learn. I really think meeting with a financial advisor is a fantastic idea or at least a third party (i.e. not mom or dad). I really think that will reinforce the points and get them to think that finances really are important.
Neal Frankle, CFP ® says
Thanks for the kind words Caroline.
Neal says
Well…your parents did a lot right. You turned out to be hard working, intelligent person.
Thanks for your input and congratulations on learning the lessons so well.
SJ says
From the role of a newly graduated undergrad…
I was spoiled. My parents helped me out a lot w/ dorming (first 2 years) and tuition.
Tho I did pick up some scholarships and internships…
I think one reason is that the first 2 years my parents had me on a pretty tight leash, accidentally. I was in the dorms, no credit card, only a checking account which had limited amount of money. Of course that was enough to live off of, easily, but I had to be careful still.
Also, since I lived in the dorms I was able to eat anything, and didn’t get greedy and accustomed to eating out.
My next 2 summers when I worked at internships I was COMPLETELY alone… as in just me responsible for finances. I made a lot, but I learned a lot too.
Lessons?
Dorms — If they end up here, even tho it’s expensive just give them very limited amount of money to “live” off of.
Summer jobs — If they do it away from home and have to learn how much food costs
Since my parents never had the formal talk w/ me I didn’t get into investing till now =(