Get Your College-Bound Kid Ready: It’s Time to Talk MONEY
It’s summer, which means that many of you have probably just breathed a huge sigh of relief having lived through graduation ceremonies and ending the long road through high school. Now, you’re beginning to put together a plan to get your kid ready for college in the fall – and while that might include finding the right microwave with the correct wattage (yes, that’s a thing, so make sure you check that) and buying a laundry basket you HOPE they’ll use…there’s something else you might need to work on.
Is Your Kid Financially Prepared to be on Their Own?
I ask this question because…well…I was not. When I graduated from high school, we didn’t have any financial literacy classes. I knew how to balance a checkbook, but that was about it. My parents didn’t understand things like mutual funds themselves, much less talk about them. They also didn’t prepare me for the credit card offers that ran rampant around college campuses at the time.
I had to figure all that out the hard way.
I’m not the only one. According to SelfLender.com…
For many young adults, college is their first experience managing money on their own. Parents recognize the need for this knowledge, but some do not know how to communicate it properly and a lot of colleges do not offer classes on the subject matter.
Finances are one of the main reasons that students drop out of college. By practicing proper money management techniques now, students can feel confident about their ability to manage finances into their adult life and avoid debt down the road.
It’s Never Too Early to Start
While my kids aren’t old enough for college, that doesn’t mean we’re not preparing them for a financial life on their own. I’m determined that they’ll start out more prepared than I was – and that means understanding how they each think about money.
My oldest daughter is my spender. Knowing this, we worked together to create an estimate of how much we both think is a reasonable amount to spend on clothes, make-up, etc. and then, per her request, a portion of that is deposited into her bank account every quarter. She tracks her spending on a budgeting app and then reconciles that with her bank account. As a result, she’s had some “ah ha” moments when she realizes she has to budget for things like the shoes she really wants. This is clarity I’m glad she’s getting now, rather than when she’s an adult without a safety net.
My 12-year-old is different. When she gets her allowance, she has me put 50% in her savings account and 50% in her checking account. While I was reluctant to give someone so young a debit card, she pleaded her case with a well-thought-out PowerPoint presentation – something my husband and I thought showed the maturity needed to handle this responsibility.
Even though my family is still in the beginning stages of financial education, I have been helping my niece who recently graduated from college. Together we set up the very popular 50/30/20 budget. Here’s how it works:
- From her paycheck 50% goes to necessary items like her car payment, insurance, and house savings (she doesn’t pay rent to her parents).
- 30% goes to discretionary activities like getting her hair done and eating out with friends.
- 20% goes to a savings account for the future or unexpected expenses. This is the account she will use instead of a credit card for those moments in life that inevitably arise. Once her cash reserve is established, she will be able to start funding a Roth IRA or start putting extra money away to purchase her own home.
One more tip before we wrap this up: One of the books I recommend so highly that I give it to my clients’ kids is Ramit Sethi’s I Will Teach You to be Rich. It’s a great read written by a young person that covers the basics from credit and how it works to saving to some simple investing.
Now, get out there and enjoy your summer with your kids!
Cecilia Beach Brown Is a registered representative offering investment and advisory services through Lincoln Financial Securities Corporation, Member SIPC. Advisory Services are offered to residents of Maryland. LFS and its representatives do not offer tax or legal advice. Please see your tax or legal professional regarding individual circumstances. C Beach Brown, LLC, Pilot Financial Advisors and Lincoln Financial Securities are separate entities. LFS-3628132-061021