‘Tis the Season!
Well, not that season, but another highly anticipated one: graduation season. Hundreds of thousands of college and high school graduates are donning caps and gowns, shaking hands, having parties, and most likely cashing checks. The real question is what to do with all of this money?
Let’s break our discussion into two categories: high school graduates and college graduates.
High School Graduates
We’ve talked about it periodically: most kids aren’t taught anything about how to handle money and for some, graduation gifts can be their first experience with large amounts of cash. If there’s not an exact plan, it can blow away faster than the autumn leaves. This is job number one for parents: sit down with your kids and discuss what the plan is with the graduation money. Here are the top 3 things high school graduates can and should do before cashing a single check.
High school graduates entering local church for graduation mass, May 2009 (Photo credit: Wikipedia)
- Establish the maximum dollar amount of your graduation gifts that you’ll allow yourself (or your kid) to spend on fun. I don’t have any problem with high school graduates blowing a certain amount. I mean, it is a joyous occasion and high school graduations should have a certain amount of indulgence. But, just like anything finance related, you have to go in with the end in mind. Failing to plan is planning to fail.
- Decide what’s going to be set aside to be spent during the first semester of college. Assuming you’re heading to college in the fall, no matter what you think you’ll need from graduation gifts, you’ll want more. Accept and embrace the reality: college will cost more than you think. If you can set aside a couple hundred dollars today for those rainy October weekends far from home, you’ll feel a lot less guilty about skipping the meal plan and ordering a pizza for your roommates.
- Take at least 1/3 and either invest it or give it away. Those two options sound like opposites, but they require similar mental acuity. We only give things away when we have an abundance mentality – we only invest if we have a strong faith in the future. Take one or two hours and pick a solid blue chip company, set up an online brokerage account, buy some stock and don’t touch it for 30 years. You’ll thank me later. Oh, and don’t forget to reinvest all your dividends from your graduation gifts! You’ll want those growing, too!
Don’t let this great opportunity for teaching kids about money slip by. There are only a few “found money” times throughout one’s life. Use graduation gifts wisely. Any high school graduate should be able to take this money and use it to get ahead in life.
I’d be thoroughly impressed with any parent that was actually able to get their kids to do this.
I don’t have kids of my own yet, but standing on the outside, I just don’t see most parents teaching their children to be responsible and “young adults.”
You’re right, Jason. It’s always impressive to see, because (and you’re right again), there aren’t many. But there’s good news: they’re out there, AND they’re people like you. Responsible. Thoughtful.
I wish my parents would have done this for me! I don’t think I saved any of my savings from high school for college. I will definitely do something like this for my kids because I know what it’s like to be a broke college student. Any savings that could have carried me over for even those first few months would have been really nice!
I’m fairly sure I blew most of my grad money and/or used it to buy my car–Geo Metro if you’re wondering.
Ha! I was, Brent. It’s funny. I wanted a Geo Metro convertible at one point. I thought it was an ultra inexpensive way to get a convertible. Never bought one, though.
I guess no one would know based on my current situation but my father was actually very insistent that I put my money into a savings account from the time I was 10. I don’t recall receiving gifts for graduations from high school or college but we did receive money (nice amounts) for birthdays, Christmas, church confirmation, etc. Plus I started working at 12 years old and most of that money was put into savings, because my father would literally check my bank book (rememember those?).
Not being able to spend anything as a teenager may have led to my overspending as an adult because father wasn’t telling me what to do anymore. But having all that money in my savings account making 20% in interest, of course was very good because I was able to pay my college tuition with the interest I made from my savings. Those were the days my friend 🙂
I wonder, Sicorra, if OG’s point about blowing some of the money would have helped you to continue saving? It seems like your dad’s heart ws in the right place, but if it didn’t help you to keep saving, there must be something that can be improved upon.
I do remember my bank book. Funny. I’d get excited whenever there was a new line in it with an updated amount!
it is hard to think about the big picture when you are in that phase of your life.. things are about to change dramtically, and the long term future is often a concern.
that said, i wish i had developed better financial discipline at a younger age.. i would be much better off than i am today.
Thanks, Jefferson! Exactly why we wrote the piece. Hopefully we’ll catch one or two high schoolers or their parents 😉
See, I totally had a plan for all my high school graduation money- and that plan was to blow it- in Europe. I was lucky enough to get to go to Spain for 2.5 weeks and Paris for 3 days the summer after graduation. I went mostly on scholarship- I think my mom paid $300 for my 3 weeks away. My spending money for that trip was my graduation money. I still have my axe from Toledo and my prints from the streets of Paris.
So maybe not the “wisest” way to spend the money, but absolutely no regrets about it.
Knowing you just a little, Erin, I’ll be there were plenty of life lessons you learned on that trip…sounds like a good use of money to me.
Main life lesson I learned- the Teacups are the most dangerous ride at EuroDisney. Only ride I’ve ever thought I was going to die on.
I think a great thing for high school grads to do is to put it toward college. Another option would be to open a Roth IRA if they have any earned income during the year. Just because the HS Grad money wasn’t earned doesn’t mean you can’t use it to fund it. Just make sure you don’t exceed your earned income.
Great tip, Lance! Most kids have some part time job which would make them eligible.
Great advice. Unfortunately for me I did not get any gifts or any advice for that matter. I graduated and moved on to piling up more debt. Where were you in 2006? 🙂
I’m reallly proud of my daughter, as she decided to invest a good part of her graduation money in Governement I (Inflation) Bonds. One of my favorite investments to combat inflation!!!!
Sweet idea, Barbara! That’s awesome of her to do that. Smart young woman.
My parents trained me well. I saved up a lot of money in my late teens and bought my first house at 18. It isn’t easy to get kids to think this way, but with diligence it is possible. I am glad my parents didn’t give up on trying to teach me.
Bought a house at 18! That’s fantastic, Miss T. I’m amazed by that. How did you get a loan?
Yeah, how did you do that? S Were your parents co-signers?