Have you ever given a fresh high school graduate an envelope with money in it? It is sure to put a smile on his or her face, but will it end up in savings or spent celebrating? Maybe your 18 year old is like Catherine Cook, who at age 18 was running myyearbook.com with her two brothers. When they sold their company three years later they netted $100 million in stocks and cash. Meanwhile, many teenagers still think mom and dad are just an ATM.
New graduates are still new at handling money, so you can help prepare them to transition to this important aspect of adulthood.
1. Set up a checking and savings account.
Hopefully, your high school graduate has had a savings account for years but perhaps not a checking account, yet. Everyone needs both before going off to college or career. Many banks have special products for students to make banking especially affordable for young people.
2. Use debit cards wisely.
Debit cards have replaced checks as the preferred way to access funds in a checking account. You can set it up with or without an overdraft arrangement with the bank. An overdraft arrangement can be nice to keep payments from bouncing, but if your graduate tends to spend now and worry about repaying later, it could result in a real debt. You should also look for a bank that provides free automated fraud and usage alerts for debit card use. These are automated phone texts or emails from the bank that let you know in near real-time if there may be unauthorized usage.
3. Set up direct deposit and automatic transfers to emergency savings.
A high school grad getting a full-time job will probably be bringing home more money than she or he has ever seen. It might be tempting to just cash the paycheck and bring it home to spend on fun. Instead, have your graduate’s paycheck automatically direct deposited to his/her checking account. This is free, faster, safer, and helps your grad avoid the chance of spending the whole paycheck and not saving anything. At the same time, set up a free automatic transfer of funds from checking to savings at least once a month to build up an emergency fund. A great goal after graduation is for your child to set aside at least $500 in savings 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.
4. Watch ATM use.
When one of my nieces first got her debit card, she thought it was really grown up to get money from an ATM whenever she was short on funds. Unfortunately, she did not like the grown up part about reviewing her bank statement each month. She was unaware that if you use an ATM outside of your bank’s network, you end up paying unnecessary ATM fees. Find out if your bank offers access to a surcharge-free ATM network.
5. Do 18 Year Olds need a credit card?
Before you decide to get a credit card for your graduate consider that the average new college graduate with a credit card has $3,000 in credit card debt. Debit cards can pretty much be used anywhere you can use a credit card and will not put the user in credit card debt. But if you want to build your grad’s credit, you can choose a secured credit card which is backed up by a savings account or request a low credit limit of $500.
6. Set Up a Monthly Budget.
The lazy graduate’s budget plan is to stop spending when the debit card transaction gets rejected. A far better way is to create a unique spending plan each month, where he or she decides how each dollar will be spent or saved. Setting aside money for savings should be at the top of the budget, not the bottom. Another good habit is to use a cash envelope budget for food, entertainment and clothing. You can’t overspend or overdraft an empty envelope.
7. Get financially prepared for college.
Don’t wait until your graduate is at college to figure out what it takes to get ready for the money side of college life. Ann House, the University of Utah Personal Money Management Center Coordinator, has recorded a free webinar with useful tips especially for high school graduates going to school in the fall. You can access the “Smart Money Tips Every Freshman Should Know” webinar at https://www.zionsbank.com/learning-center/webinars.jsp.
If these tips make sense to you, share them on your graduate’s Facebook page, or better yet, sit down and talk about them. Aristotle said, “You can be young without money, but you can’t be old without it.” Help your new adult start on a firm financial footing by adopting these tips. Here are some more tips on how to teach children to budget their money.
Contact Don Milne at firstname.lastname@example.org