This Back-to-School Season, Talk to Your Graduate about Money
Graduation is a great time to talk to your kids about money. Consider the tips below to guide the conversation:
Help your child establish a budget for the next phase of life. A new phase of life often brings a new set of expenses. Offer to sit down and help them create a budget. Online estimators are useful tools to discern how to allocate funds by category. If you typically covered your child’s expenses throughout high school, help them gain perspective on their expenses going forward.
Set financial expectations. As your child grows toward financial independence, it is beneficial to have a conversation with them about what help they can expect from you and what costs they are responsible for.
- If your child is headed to college or trade school, discuss how tuition and any associated room and board expenses, technology fees, travel to return home, etc. will be paid for. Can your child rely on scholarships or help from a 529 plan? Will they need to pick up a job? Encourage your child to fill out the Free Application for Federal Student Aid (FAFSA), this process will let your child know what federal financial aid may be available to them. If loans need to be taken out by you, your child or both for school, review the terms, including interest rates and payback schedule.
- If your child is headed directly into the workforce, discuss how to approach paying for rent, commuting to work, and other common expenses. Discuss what bringing home a post-tax paycheck looks like and advise on saving and spending income.
Consider alternate ways to help your kids. While it’s natural to want to support your child as much as you can, it’s important to think about how to thoughtfully transition the financial responsibility to them over time. As a starting point, consider the difference between funding a key milestone (tuition or a car) and funding ongoing daily lifestyle expenses (concert tickets). Some parents desire to cover all expenses while a child is in college so they can focus on their education. If you share this viewpoint, set any boundaries and decide an end date of when they will be fully responsible for their own expenses. When a large expense arises like a new car or graduate school, consider co-signing a loan instead of writing a check, to help them lock in a lower-interest rate or more favorable repayment terms, while encouraging some financial independence.
Set boundaries for future milestones. Once expectations are established for the financial responsibilities in your child's next phase of life, have a conversation with your spouse about how you’ll handle future milestones, such as a wedding or home purchase. Giving money to adult children can be a sensitive and important subject to be on the same page about. Have open dialogue about how much monetary support is important to you to provide and consider putting a financial plan in place to guide future decisions.
The back-to-school season is a great time to consider what financial preparedness looks like in the next phase of your child's life. Know that your financial advisor is there to help you establish your financial strategy and comfort level with helping your children financially while staying on track to meet your biggest goals.
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