Preparing for a life of financial independence
Financial Tips for the Parents of Recent College Graduates
by Bill Hardekopf
5 Ways to Save on Student Loans
10 Reasons to Kick Your Adult Children Out of the Home
A CFPs Advice for Recent Graduates
If you are saving for your child's college education, you may need to save a little more for financial support after graduation.
According to a study by American Express, 80% of graduates move in with their parents after graduation due to financial instability, and almost half of recent graduates are receiving financial assistance from their parents.
The average student loan debt is $37,000. Graduates may also have another $3,000 in credit card debt. These young adults are financially stressed before they enter the work force, and many have to turn to their parents for help. But these parents have just spent a lot of their money to pay for the college education and need to be saving for their own retirement. The parents may need their own financial help.
Tips for Parents
- Prepare your student for financial independence. Put your college students on a budget. Give them a fixed amount of money every month that is just enough to cover their expenses so they learn to control their spending, which is a skill they must have when they are on their own. One day, they will have to survive in the world without the bank of unlimited funds from their parents.
- Don't sacrifice your retirement to pay for college. It may be tempting to tap your IRA for college, but there are costly consequences and it can leave you short for your retirement. Once the money is spent, it is difficult to rebuild a large balance. Early withdrawals from retirement accounts are expensive. You may have to pay income tax or a 10% early withdrawal penalty. Retirement account distributions also count as income.
- Prepare a plan with your student to pay off college debt. Student loans may be necessary for many families to pay for college, but it is essential to have a plan to pay off this debt.
- If your child must move home, establish rules. This should be a temporary move to help your child get financially established, not to avoid reality and responsibility. Charge a reasonable rent and an amount for utilities, groceries, etc.
- Set deadlines and enforce them. Financial assistance is temporary help, not a trust.
- If you are struggling to make your own ends meet, you may not be able to afford to give much help to your child. Do not go into debt or damage your own credit to give financial help.
Bill Hardekopf is CEO of LowCards.com, a site that simplifies the confusion of shopping for credit cards. It is a free, independent website that helps consumers easily compare credit cards in a variety of categories, such as lowest rates, rewards, rebates, balance transfers and lowest introductory rates. It also gives an unbiased ranking and review for each card.
Take the Next Step:
- Help your student formulate a plan for paying back their student loans.
- Have your graduate consider these three objectives before they decide to move back home.
- Find out if you can benefit from student loan debt help.
- Get control of your financial life. Subscribe to Financial Independence, a free daily email that provides you with the tools to help you gain that control and achieve financial independence. Subscribers get a copy of Are You Heading for Debt Trouble? A Simple Checklist for FREE!
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