Graduating to Financial Independence
These five tips can help you prepare your high school senior to graduate into adulthood.
Prom, parties, and “Pomp and Circumstance”: May is a big month for parents of graduating high school seniors as children make the leap into adulthood. But no matter the path your child plans to walk — college, a “gap year” or direct entry into the workforce — it’s important to prepare them to make good financial decisions.
Have you done all you can to get your graduate ready to successfully handle their money? Here are five areas to focus on to help them achieve financial independence:
1. Set up a checking and savings account.
Surprisingly, not all high school seniors have a bank account. High school graduates should be able to qualify for a student account with no or minimal fees. Your child may or may not want to order checks given the rise in popularity and convenience of online banking.
If they choose to write checks, ensure that they are recording payments in their check register and reconciling it with their bank statement to avoid overdrafts and related fees. You may consider setting up an overdraft arrangement with the bank but keep in mind that anyone with a personality to overspend may not be helped by an overdraft arrangement.
2. Set up direct deposit and automatic transfers to savings.
Having your graduate’s paycheck direct deposited to their checking account is free, fast and safe, and discourages spending the whole paycheck and not saving anything.
Along with setting up direct deposit, you should set up a free automatic transfer of funds from checking to savings at least once a month. All graduates — and their parents — should have at least $500 in a savings account for emergency needs. Part of growing up is being able to handle your own emergency spending needs instead of expecting mom and dad to act as an ATM machine.
3. Watch ATM usage.
Many young people fail to pay attention to their bank statements and may not realize they are paying fees they can avoid. When using ATMs from your bank’s network, you should be able to avoid surcharge fees, but when using out of network ATMs, the fees can build up.
4. Create a monthly budget.
Have your graduate create a budget for each month’s income. Make sure they have a plan for each dollar earned, or the money will disappear in unplanned spending. Savings should be at the top of the budget list. Using a cash envelope budget for food, entertainment and clothing will help keep your teen from overspending.
5. Do your homework.
The best way to be successful with money management is to be prepared. Have a game plan before setting foot on campus. School tuition, steep textbook prices and rent for housing are just a few of the costs that college students face. At times, it may seem impossible to save money. To help get you started, consider these money-saving hacks.
Graduating from high school is an exciting time of life. Make sure your child does not have to deal with the wrong kind of excitement by helping him or her take these important steps to wisely handle their finances.