My daughter is about to graduate high school and head to college in the fall. She is receiving a considerable amount of money gifts from family and friends. I would like for her to use some of it to splurge on an item or two that she really wants, like a new camera. I've also suggested that she use some of it to open a debit/checking account. She already has a savings account but that doesn't really make very much interest. I was hoping someone out there may have a good idea of what she should do with the rest of it. Maybe some kind of investment that would make her a little more money with the money she has.
Any advice is appreciated!
k:)
Hi K.,
Monetary graduation gifts were originally intended to pay expenses at college. This may or may not be the intention here, but it would be a good idea to save some for some college expenses she has. That would insure the thank you notes are appropriate to those that intended the money that way.
My two cents!
M.
Depending on how much money is received, I'd either contribute to a 529 (if you have one) to go towards her college expenses, or I'd seek the advice of a financial planner to see if it's advisable to invest in mutual funds, a Roth IRA, decent yield CD, etc.
My husband and I met with an accountant right after we got married. We didn't have kids yet. He said the day we graduated from college, we were already behind the 8-ball in terms of saving for retirement.
I'd let her pick an item or two to enjoy, but I'd also use it as a lesson to teach about saving for the future. The financial crisis we're in, largely caused by people being SO over-extended in debt (mortgages, credit cards, etc) should be a huge learning lesson.
I'd also recommend making her be responsible for some portion of her college. I spent a year out of college for financial reasons. At 19, I worked 3 jobs, 7 days/week to put myself back to school. I didn't make much (highest paying job was $9/hour), but I bought a car and saved $17K in that year.
When you're contributing towards the cost of college, you take it much more seriously. I've been on both sides (parents paying all and me contributing), and I was a much better student when I was contributing.
Good luck!
I agree with Mimi...i would save them to help her purchase books in the fall. Books are expensive!! I do think it would be okay for her to spend some of it on a nice camera or maybe some luggage, or even outfitting her dorm room with some things she can use for years to come. If you have enough to invest it that's great too, but I think you should tell her it's going towards college.
I'm assuming your looking for some type of short term investment, so the money can be used for college. If you have a 529 plan, I would recommend putting the money in there. Your next best bet would be a cd, but you usually need to invest for at least a year to earn a decent interest rate.
I would say NO NO NO NO NO NO to a debit account. Most young adults, as well as many middle aged adults, do not have the disapline to use the cards in responsible way. You need to track all your expenses, and it's just too easy to swipe that card and the next thing you know the account is wiped out.
I don't know how important liquidity is for you/your daughter at this point, but I would probably go with a Money Market if you are looking for a good interest rate and availability of funds. A 529 plan is a good option if you want to ensure that the money cannot be used for purchases outside of school expenses, but I would hold off on putting the money in an IRA. Many expenses can creep up while in college, and you have severely limited access to the money in an IRA without penalty once it is in there.
What does your daughter want to do with the money? Since it is a gift for her graduation, I think she should have a large say. I also think a visit to a financial advisor is a great idea! If you go with your daughter, it will give you an opportunity to hear her voice her financial goals and to work with a professional regarding the ways to get there. It will give her an opportunity to make a real-world decision based upon different informational sources. CPAs are good for tax advice, daily money management, etc., but they are not financial advisors. You should seek a professional with your local bank or investment firm (it doesn't matter how small/large the dollar amount) and give her the chance to ask some questions and get an opinion. Then, she can decide, with your input, which option would be best for her. Even if she chooses not to use any of the investment vehicles the advisors provide, she will be better educated on the various tools at her disposal in the future. Good luck, and congrats on her graduation!
I had 2 kids graduate high school in 2 years. very different kids in both temperament and responsible wise. the first one saved every dime for the fall for college. he spent only about $1000 and that was on a laptop for school. the rest he used for books and broke the rest into 8 months worth of spending money for school. the second kid used his up before he ever got to school. then was broke most of the year. he has since learned his lesson lol and now saves for college. I would skip the camera but that's just me. books for college now runs close to $1000 a semester. and there are user fees, sports fees club fees etc....
