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Congratulations, parents of new college grads. Your kids earned their degrees, broadened their horizons and maybe even acquired marketable skills. And the best part for you? Now they get to pay for everything themselves.
Well, maybe.
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About half of all 18- to 24-year-olds live at home, according to the Census Bureau, so there's a good chance your offspring will land back on your doorstep for at least a while. Many parents are happy to help their kids look for a job and get their financial bearings. The trick is to guide without coddling.
The Solomons of Clifton, Va. -- parents Jackie and Cecil and daughter Caroline -- think they've found a happy medium. Caroline, 21, is graduating from American University, and her parents have invited her back home for a year. The game plan: Caroline finds a job. As soon as she starts earning money, she saves what she would have spent on rent to put toward renting a place of her own. "As long as she can cover her bills and not run around in a fig leaf, I'll be happy," says Jackie.
Caroline is already off to a promising start. Along with her degree in anthropology, she is heading home with a manageable amount of student-loan debt -- about $8,000 -- and a single credit card with a zero balance.
Jackie and Cecil say they have always talked openly about money with their daughter. "No long, prosaic conversations," says Jackie. They just offer guidance when needed -- a role they're happy to continue.
THE BIG PICTURE
One big surprise new grads face is how expensive it is when they don't live on Mom and Dad's dime, says Brian Jones, a certified financial planner in Fairfax, Va. And that first paycheck doesn't go nearly as far as they think it will.
For example, if your child is a single filer claiming one withholding allowance, a salary of $35,000 shrinks to about $28,000 after federal taxes, Social Security and Medicare are subtracted. And that doesn't include state taxes or deductions for workplace benefits, such as medical insurance or a retirement plan. All told, your grad is likely looking at annual take-home pay of $25,000 (use the paycheck calculator at PaycheckCity.com).
To divvy up that income, start with these basic guidelines, which can be adjusted for your child's situation: 30% for housing; 15% for food; 10% each for utilities, transportation, debt repayment and savings; and 5% each for clothing, entertainment and miscellaneous purchases.
Keeping track of expenses for at least a couple of months doesn't have to be a drag. Caroline Solomon simply jots down her expenses in a notebook. She figures that if she watches her pennies, she'll have enough dollars to splurge on things she really craves -- in her case, designer handbags. "I ask myself, What kinds of big things will I not be able to do if I spend money on little things?" says Caroline. "That helps me stay focused."
FINDING INSURANCE
Health insurance may not be high on a young adult's list, but making sure kids are covered is a priority for most parents. Depending on your insurer and the state in which you live, a dependent child could be dropped from your family policy upon graduating or turning a certain age -- usually between 21 and 25 (up to age 30 in New Jersey).
If new grads don't have coverage through a job, they still have plenty of options, often at affordable rates. First, contact your benefits office and ask about COBRA, the federal law that allows an adult child to remain on a parent's policy for up to 36 months beyond the cutoff age. This may be your best bet if your child has a preexisting medical condition.
COBRA coverage can be expensive; it typically costs between $200 and $500 per month, says Sam Gibbs, of eHealthinsurance.com. New grads in good health could save substantially by buying their own individual coverage.
POSTED BY: Josey (May 21, 2008 09:59 AM)
This is a great article! It's clear that entering the real "real world" can be a bit overwhelming for new grads. Parents realize that they are the primary personal finance educators of their children (many don't receive this while in school)and they are looking for guidance on how to properly steer their children to a life of financial success. I'm involved with a program called Playbook for Life...which can be downloaded for free at www.playbook.thehartford.com.
