Golden Rules for Grads

A guide for parents.

By Janet Bodnar, Editor

From Kiplinger's Personal Finance magazine, June 2008

Kiplinger's subscriber Chad Hollenkamp wishes to thank his parents. When Chad graduated from college with student-loan debt and a car that had just died, Mom and Dad welcomed him back home for a financial respite, and he has made the most of it.

He contributes 7% of his salary, matched by his employer, to his 401(k) plan, kicks in $50 a week to a Roth IRA and another $100 a week to savings. He's paying off the loan on his Toyota Corolla in three years so he can put more money toward a house. Writes Chad: "My parents, along with your magazine, have put me on the fast track to becoming a millionaire."

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More than half of college grads return home after graduation, and I confess that two of them were mine. They haven't yet thanked me for putting them on the road to riches, but both of my children have been launched after successful, even pleasant, sojourns at home.

I've dished out a lot of advice to parents on what to do about financial issues that crop up with young adults. So with my own kids I felt obliged to eat my own cooking -- or at least enough of it so that I wouldn't be embarrassed to explain how our family handled money matters. Here's what I'd recommend, with input from other parents.

Discuss your expectations upfront. If the kids come home, how long will they be welcome to stay? If they have a job, will you expect them to pay at least a token rent? (A good idea.) If they're on their own, are you willing to subsidize them? "I regret not specifying our intentions as soon as our two oldest graduated," says one parent. "Instead, we found ourselves responding to crises. We finally told our eldest that we would help him out in emergencies, but that regular expenses such as rent did not fit that category. He has not asked us to lend him money since."

Cut the financial cords, or at least fray them, as soon as possible. Even if you don't charge rent, your kids should cover at least some of their own expenses or chip in for groceries and cable TV. Under one family's arrangement, "our son pays for his own car insurance, but we continue to pay his health insurance and cell-phone bills."

Kids have no income? Have them lend a hand. At a minimum, they should be doing their own laundry, pitching in to run errands or doing yardwork. Our daughter took on the task of fixing dinner before she took a job 3,000 miles away.

Let young adults establish credit on their own. They should be repaying their student loans on time or applying for a credit card if they don't already have one (see "Intro to Real Life," on page 70). Don't co-sign for their obligations or put them on your accounts. "My kids never learned how to manage credit until they had to pay the bills themselves," says one father. I couldn't have said it better.

Don't hesitate to give financial advice. Who else are they going to ask (besides Kiplinger's) for guidance about investing in their 401(k) or opening a Roth IRA? In fact, 70% of Gen Xers and Millenials still look to their parents for personal-finance advice, reports one study.

Be judicious in helping your kids with their job search. If you know a good contact, give them the name -- but encourage them to make the call. Young adults are great at trolling the Internet for job opportunities (my daughter responded to dozens of ads), but they're often shy about speaking with someone over the phone or in person -- still the best way to sell themselves.

Pay for their health insurance. This is a major concern for parents, who often don't realize that under the federal COBRA law they can extend coverage for adult children who no longer qualify for the family policy. Or parents can cover for them through a temporary policy or a high-deductible plan. Picking up the tab will give you peace of mind -- and protect your pocketbook in case of catastrophe -- so go ahead and do it. "We neglected to continue our older son's health coverage under COBRA," says one parent. "We will not repeat that error with our second son."

Pass on your family's values. "Young people should get in the habit of sending small contributions to their alma mater and to the charity of their choice," says one father. When our son started his first job, he surprised us by sending us a check for $100 each month. He wanted to pay off some of the tab he figured he had run up during his year at home, when he had been a student with minimal earnings.

Don't tap retirement assets to help the kids. You need to protect your own financial security. "I hope someday to occasionally bestow money on all of my kids without their asking, just to help them out," says one mother. "My in-laws did that for us, and I will always appreciate their generosity."

Have faith in your offspring. "My son leans toward lessons from the '2-by-4' school of life," says one parent. "When life smacks him upside the head, the lesson tends to stick." My own son, now headed to grad school, informed me he had done his taxes and filled out his financial-aid application on his own. I asked if he needed advice from Kiplinger's expert on kids and money. "I've got it covered, Mom," he told me.

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