Financial Planning While in College | Diversified Wealth
By: Andrew Rosen, CFP®, CEP®

The beginning of a new college semester always makes me nostalgic.  I remember my four amazing years at the University of Delaware.  As a young, innocent finance major, I recall that amazing feeling each time when I went back to school.  (I even remember the tears driving home after graduation.)  They were great and hopeful times for me, even with so much uncertainty looking forward.

Although I was a finance major (with an economics minor), the reality is students were taught very little about personal financial planning.  Unfortunately, this means most students (then and now) are ill equipped for the real world upon graduation.  I figured with many of our executive and professional client’s children going to college, why not provide tips to start helping them prepare financially for post graduation.

Without further ado, here are my 9 tips to financial planning while in college.

Tip 1: Get a Job

This one seems obvious; I suppose it kind of is.  Working, while taking classes and balancing student life, can have a very profound effect on their life.  They learn to balance their time and understand how hard they have to work.  They’ll start seeing the impact of taxes on their paychecks–a sobering experience, for sure.  Although they can party until 2:00AM, they still have to find a way to wake up “bright-eyed and bushytailed” to report to duty.

I’m not suggesting they need a full time job.  Something to start teaching responsibility and life management skills is all I’m getting at, honestly.   When I attended U of D, I worked part time at the local Morgan Stanley office and taught squash on the weekends.  The life lessons I learned were much more important to me than the extra few dollars in my pocket.

Tip 2: Paying Their Expenses

There is a clear difference between paying ones expenses and being responsible for them.  For this, I suggest making your children accountable for paying the cable bill or their rent.  I never paid one expense myself until I graduated.  Sadly, that didn’t teach me much about the responsibility entailed in being the one to cut that check.

Once these college students graduate, they’ll be responsible for a tremendous amount of bills.  Do them a favor.  Have them get accustomed to financial organization by paying a recurring bill or two.

Tip 3: Being Responsible for an Expense

Bet you didn’t you see this one coming?  Now that your college student pays some bills, why not give them a bill to actually be responsible for out of their own funds.  Whether it’s from a summer job or some form of employment during the semester, giving them accountability has a multitude of benefits.

Being in charge of at least one expense (if not all) will start preparing them for the way the world works.  They must first earn the money and then plan accordingly before spending that money.  It also could teach them about saving for delayed gratification, instead of thinking about getting everything they want immediately.

Tip 4: Budgeting & Paycheck

In the adult world, you (generally) get paid on a regular basis.  From those funds, you must budget.  Carefully, you plan for what is expected and isn’t unexpected.  Then, you make sure your income covers your monthly expenses, otherwise you simply can’t afford to live that lifestyle.  Most of you reading this already know this joy of being a grownup.

Why should we treat our independent college students any differently?  Have them build a budget and present it to you.  Then, you can determine what you are willing (or able) to pay towards this budget.  From there, let them know the amount, so they can adjust their expenses or find other means to cover the shortfall.  Finally, try giving them these funds as a “paycheck” every two weeks.  This will have them really focus on living within their means and get used to how the world works.  If the money runs out two days before the next paycheck, well they’ll have to get thrifty.  If there are leftovers, well then.. party on!

Tip 5: 401(k) Match

Your children may not earn much during the school year or their summer job, but what they do earn can be saved into a Roth or Traditional IRA.  Why not reward them if they begin an earnest savings for their future?  You could essentially give them a defacto match.  Whatever they save for retirement, you’ll give some form of match to add into their IRA’s.

Think of the huge advantage here.  First, they’ll start learning how to save out of their funds.  Second, it will force them to learn about the investment universe, as they’ll be forced to figure out how to invest these dollars.  Third, imagine the head start they’ll have on their retirement nest egg.  Finally, a savings mentality will begin to build in their psyche.  All that by just matching a few dollars in their IRA — not too shabby!

Tip 6: Credit Card

Naturally, I’d tread carefully with this one.  Getting a credit card in your child’s name is a great way to start building their credit.  Of course, they shouldn’t apply for a high limit one; this is an exercise to get started and to teach credit experience.   Therefore, make sure you review this bill with them on a regular basis to avoid unforeseen surprises.  Remember, you may have to co-sign with them depending on earnings history.  This means your credit will be affected if they don’t pay on time!

Taking all that into consideration, the goal is for them to learn respect (and fear) of credit cards. No one wants them to grow up to be a chronic abuser.  However, when they go to get that first car or home, having healthy credit will be huge.

Tip 7: Doing their own taxes

If your college student has some form of income, they’ll be filing taxes.  Why not have them do it with your accountant or at very least bring them into those meetings?  Their taxes shouldn’t be that complex, so begin that dialogue (and relationship) with your accountant.  Hopefully, it’ll be something they can carry forward into their working years.

Taxes can be a mystery to us all.  They are complicated and painful.  To be confident and not fearful of taxes, bring your college student in on this aspect of adult life. Plus, wouldn’t it be nice for them to actually understand where all that hard earned money is going?!

Tip 8: Estate Plan Documents

Too many adults don’t have a will or estate planning documents.  I’m sure you’re thinking:  “You want my child to get something in place?”  I absolutely do.

Don’t get me wrong, they certainly don’t need a long and complicated estate plan.  At the very least, get them something basic. Documents discussing their medical wishes should something happen to them is a prime example.  Tragedy can strike at any age.  Now that these college students are technically adults, they are entitled to their own opinions and wishes.

Therefore, get these young adults a basic power of attorney, a healthcare proxy, and maybe a living will or a will, as well.  It won’t cost you much.  Heck! Give us a buzz and we can have one of our attorneys get it done inexpensively.  It’s time for your college student to think about protecting themselves and others.  It’s important for them to have this responsibility.  Hopefully, they’ll want it, too.

Tip 9: Loans/Financial Aid/Scholarships

This last one is a bundle.   Why should you, the parent, be responsible for filling out that FASFA paperwork or applying for their loans?  Why do you have to find the scholarships to save money?  As a busy professional, your lives are busier than theirs.  Applying for loans is something every adult will do.  We get car loans, mortgages, and maybe even a business loan.  Why not make them responsible for applying as practice and lessons for later?  They should learn how the system works and feel the dryness in their throat when they realize they are responsible to pay back a whole lotta money.

Also, applying for those scholarships will take on an entirely more important meaning when they understand the obligation.   Just telling them there is a loan which they are responsible for loses perspective if they aren’t the ones actually involved in the process.

Time for the real world

If you can instill some of these principals into your college student’s life, they’ll graduate and be better prepared.  They’ll actually be somewhat ready for the real world and the immense duties thrust upon them.  Pick your favorite few tips from our list above and start slowly. I think you’ll find your kids just might surprise you (and themselves).

Writing this particular blog made me laugh inside frequently.   I thought about what my college buddies would have said if I told them I’d be writing a weekly blog about financial planning (and that people would actually be reading it).  Sometimes life has a funny way of playing out.

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Andrew Rosen

In his role as Financial Planner, Andrew forges lifelong relationships with clients.  He coaches them through all stages of life and guides them to better achieve their life goals.  For more information about Andrew or the other firm partners, Kyle Hill and David Levy, click the link below.

Find out more about Andrew Rosen, CFP®, CEP®
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Financial planning and Investment advisory services offered through Diversified Financial Consultants, LLC, a registered investment advisor. Securities offered through Securities Service Network, LLC, Member FINRASIPC .  Associates of Diversified Financial Consultants are registered representatives of Securities Service Network, LLC, a registered broker/dealer, 9729 Cogdill Road, Knoxville, TN 37932. (800) 264-5499.