If you're the parent of a young adult, then you're child has just crossed a stage, received a diploma, thrown their cap in the air, and left campus behind to go out into the world entering a new phase of life. It is an exciting time, for sure, but it is also a time when major life decisions have to be made, and those decisions can affect their futures for many years to come.
Some college graduates will accept their first full-time, real-world job, as they launch their careers. Some of those graduates will be moving to a new city to accept their jobs. Some college sweethearts will decide that now is the time to marry and begin their new lives together. For almost all of the graduates, it is also a time when they must become financially independent, when they cut their parents’ apron strings, and move toward self-sufficiency and fiscal responsibility.
In order to prepare for this momentous period of life, there are some concrete steps that can be taken to help your child effectively plan for adulthood.
I have touched on this subject before in previous blogs but I don’t think this subject can be emphasized enough in terms of its importance to young adults. Most high schools and colleges do not offer course work in personal financial management, so graduating students often go out into the world with an incomplete understanding about how the financial basics work in the real world – checking, savings, spending, budgeting, investing, credit, taxes, 401(k)s, saving for a down payment on a home, buying or leasing a car, the consequences of debt, and the importance of retirement planning (especially in making contributions at an early age).
Financial literacy is vitally important in helping a graduating student to establish a secure, successful and responsible future, and I strongly urge all young adults to enroll in a financial literacy course. Some colleges are beginning to realize the importance of this subject and are making personal financial management courses available to their students (my alma mater, Texas Tech University, offered a program called Red to Black, which was extremely helpful to me).
If your college doesn’t offer a similar course, then take it upon yourself to enroll in a local community college course, or a weekend seminar, or a continuing education class, or take a course online. These courses are generally not very expensive but the impact it can have on a young person’s life is enormous and lifelong.
Similarly, there is a great website sponsored by the American Institute of CPAs called 360 Degrees of Financial Literacy. This site and its services are free and though it covers all kinds of financial topics for all kinds of people in different phases of life, there is a section specifically devoted to college students. It is a valuable resource and current college students and/or recently graduated students should take advantage of it.
In addition, here’s a link to a website which details the Top 50 College Financial Literacy Programs.
Managing Student Debt
In 2017, the average student loan debt of a graduating college senior was
$37, 172 – a colossal sum of money. Typically, a graduate will be obligated to start making payments on that debt beginning six months after graduation. Needless to say, this can be a financial burden for a new graduate starting out in life.
One way to minimize student loan debt is to find alternative ways to finance a portion of your college education, so the amount you need to borrow will be less. Here are some suggestions from 360 Degrees of Literacy for doing that:
Alternatively, after graduation, make sure you have the right repayment plan in place as you begin to pay back your student loans.
Typically, loan payments are calculated based on a standard 10-year repayment plan, in which your monthly bill will remain the same for the entire loan term. However, there are other options to consider:
Graduated Plan – This is a plan where your payments are lower at first, and then get higher over time. That may be a good option if you believe your income will rise in the future—as it does for most graduates—but you will end up paying back a higher total loan amount, due to additional interest charges.
Extend Your Loan Term - You can also lengthen the loan term for up to 30 years – and lower your monthly payments – with an extended payment plan. However, once again, you will pay more in interest than with a standard payment plan.
Income-Based Plan - An income-based plan is available on certain federal loans. They are typically meant for borrowers with a very high loan balance and the loan payments are set at an amount based on your discretionary income.
In addition, another great resource for guidance in repaying student loans is the Trellis Company – a 501(c)(3) non-profit corporation whose mission is to help students to “successfully repay their education loans.”
As a young person goes out into the world after graduation, it is important for them to know what expenses they now might have to assume, expenses that their parents may have covered while they were in school. For example, car insurance, medical insurance, cell phone bills, vacation expenses, credit cards, etc. Many parents will transfer those responsibilities to their child after graduation and it’s important for the young graduate to know so they can budget accordingly.
As I said, it’s an exciting time of life but it’s also one where financial responsibilities must be met, and to do that successfully, education and preparation are key.
United Capital Financial Advisers, LLC d/b/a Goldman Sachs Personal Financial Management (“GS PFM”) is a registered investment adviser and an affiliate of Goldman Sachs & Co. LLC and subsidiary of The Goldman Sachs Group, Inc., a worldwide, full-service investment banking, broker-dealer, asset management, and financial services organization.
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