Give Your Graduate the Gift of a Financial Education

Money Tassel

So, your little girl or boy has finally grown up and is about to graduate. They are about to face the scary “real world” without the constant guidance from mom and dad. You wonder, “What can I do for them before they leave for college that will have a lasting impact on the rest of their life?” Money Magazine has a great idea: give them a session or two with a financial planner.

What better to preempt those inevitable credit card offers and student loans? The financial planner can explain, probably much better than you or I can, the downward spiral that can occur when a person spends more than they earn. And, in college, what you earn isn’t much, so you have to be even more conservative in your spending. The planner can explain the long lasting financial effects of just one extra night of partying a week.

Aside from explaining what the student shouldn’t do with their money, they can also explain what they should do with their money. Right away the student can begin putting 10%+ of their income into a savings vehicle to jumpstart their road to financial independence. They can tell them about such wonderful things as compound interest and give them examples on why it pays to start early. Take for instance someone who starts investing $1,000 per year their first year of college versus someone who starts five years later. Assuming 40 years of investing at 8% interest, the one who started saving earlier will have nearly $94,000 more than the one who started later. Only five years earlier!

The glue that will hold the financial plan together will be the fact that the advice is coming from a 3rd party expert in the field of personal finance. (i.e. not mom and dad) This freedom from mom and dad allows the soon-to-be adult a chance to be independent and develop a confidence in their ability to handle their finances on their own. It will also allow them to be more forthcoming and honest about their concerns, fears, and hopes.

My recommendation is to find a fee-only planner as you don’t want someone trying to sell your child something when they are just supposed to be teaching them. The $500-$1000 you will spend will be a bargain compared to the alternative of a financially inept child calling you every few months for “just another loan until I get back on my feet.”

If you haven’t already, take a look at my article on 6 ways to increase your kids’ financial intelligence. It has a few tips on what to do BEFORE graduation, so your child will hopefully be interested in their finances when you give them perhaps the greatest graduation gift ever.

Photo: PublicRadio.org