A Guide to Talking to Children About Money: College and Emerging Adults

March 16, 2018

Beth Milkovits

Parents may think that after high school, there is not much more they can do to educate children about the value of money. In our latest “Guide to Talking to Children About Money,” we explore the ways that parents can prepare their college-age and emerging adult children to be financially responsible adults.

Parents may think that after high school, there is not much more they can do to educate children about the value of money. While a lot of the groundwork has been laid, there are still many lessons parents can teach their children through college and emerging adulthood to help prepare them to be financially responsible adults.

Society has changed, and living on one’s own has become more difficult. Expectations for higher levels of education have increased the debt burden carried by many young adults. Entry-level salaries have not kept up with current average living expenses, and sometimes it is nearly impossible for young adults to pay for basic needs without living at home with their parents.

While young adults, at this stage, are working to establish themselves, they are also in the midst of a new phase of development that begins in college and continues through emerging adulthood. The developmental changes fall into two categories: the growth of personality through adding new traits or expanding existing traits, as well as a new way of organizing beliefs by creating a more complex system. These changes are driven both by biological systems and our societal and cultural rules. With age comes greater expectations – to become more independent (autonomy) and less impulsive (delayed gratification). Ultimately, we expect children to become responsible adults.

Delayed gratification is the ability to resist the temptation for an immediate reward and wait for a later reward. In the well-known "Standford marshmallow experiment," executed by Walter Mischel in the late 1960's and early 1970's young children were offered a choice between one small reward provided immediately or a larger reward if they waited for a short period of time. Mischel then followed up with these subjects in adulthood and found that the children who were able to wait longer had better life outcomes. His research has given us substantial evidence about how an individual's ability to delay gratification plays a significant and intricate role in shaping his or her health, well-being and success.

Autonomy involves developing a greater sense of self-control and behaving and thinking independently of others. Children develop autonomy over time, with the help of their parents. It is important to learn independence while being supported and guided by adults. Children who learn to be autonomous during appropriate stages in life can go on to be productive adults.

This article offers guidance on how to build these skills at later stages of development: college and emerging adult. Our practical advice is broken up into three categories we believe are applicable at each developmental stage:

Helping children to work and plan for the future
Teaching children to spend and save wisely
Coaching children on the importance of giving back

College (Ages 18 to 22/24)

College is often the environment for this stage of development and provides an ideal setting for students to try new activities and get feedback from each other. Having control over their schedules and being exposed to new ideas sets the groundwork for the expansion of their identity.

Distinguishing Needs from Wants	Spending and Saving Wisely	Giving Back
Help your child think ahead. One way to do this is to purchase college supplies before she heads to campus, where items are often more expensive. Even if these items are on mom and dad‘s tab, have your student budget out and plan the purchases.	Have your child put money towards school. Your child is likely not saving a lot this point, but contributing to tuition is still a good idea. Kids who contribute to their education, even when it is unnecessary, do better in school.	Explore a charitable activities. There are many opportunities to get back at college. Encourage your child to choose a few activities, and one may capture her attention.
Explain differences in spending ability. So if your child’s friends may be on a tighter budget than he is. Discuss this so he is all aware and considerate but does not feel pressured to pay for everything.	Illustrate how each purchase adds up. Your child may not realize this yet. Review his bank account transactions together to see how the late night pizza and Lyft rides can head up. Start a budget!	Discuss prioritization. Although you want your child to be involved, also be aware that she may spread yourself too thin! Time management is important to learn during these years.
Prepare your child for a part-time job on campus. College kids who work on campus after 20 hours a week at higher grades and or more engaged students.	Stress the importance of pain credit card bills on time and in full. Discuss the future impact credit card scores will have later in life.	Create a giving budget. In addition to volunteering, your child may be contemplating donating money to an organization she volunteers with. Discuss how this will fit her spending budget.

Emerging Adult (Ages 22/24 to 30)

During the emerging adult phase, children are self-focused, continuing to explore and test out their identity. It is often a time of instability, feeling “in between” student life and true adulthood. However, it is also a period of great optimism. There are many possibilities, and all doors are open.

Distinguishing Needs from Wants	Spending and Saving Wisely	Giving Back
Discuss the importance of having a safety net. Should it be three months of spending needs, or six? Have your child calculate how much she can plan to put away and still get by.	Challenge your child to find free entertainment events to attend. This will show her that not all fun activities come with a cost.	Suggest that your child volunteer while looking for a job. Ideally, this would be in an area she is interested in working.
Explain that being an adult is not always translate to spending more. Your child may want to buy items he thinks he needs now that he is older. For example, you could suggest it may be better to purchase less expensive furniture at this point.	Work together to create a budget. This should include all income (e.g. jobs, trust accounts, birthdays and parents subsidy) and all expenses (which an online tool like Mint can help ensure you accurately capture).¹	Encourage your child to find ways to give back through organizations at work. Through this, she may be able to network will giving back to her community.
Help your child practice for her dream interview while starting to build a network. Set up practice interviews and networking meetings with your colleagues or their alumni networks.	Review insurance offerings and needs. Be sure your child is covered by health and renters' insurance at the very least. Discuss areas where she may want to self-insure and explain what that means.	Suggest that your child set aside a percentage of his income to donate. He can include this in his budget.

Many parents of children at the emerging adult stage are faced with a new challenge: navigating the path of providing the correct amount of support. It can be difficult to figure out how much support to give without overdoing it while simultaneously not withholding too much. The answer depends on a child’s maturity, personality and the type of work she is pursuing.

Parents often decide to provide some level of financial support for college students as well as during emerging adulthood as children settle into a first job and new lifestyle. However, once parents determine the right amount of support and communicate it to their child, it is important to stick with the plan. If their child is a few hundred dollars short at the end of the month, parents should avoid immediately paying off his credit card bill. This is an opportunity to learn how credit cards work, how interest adds up and the sacrifices that must be made the following month to get back on track. Small failures are teachable moments and prevent more substantial missteps later. Allowing children to solve their own financial problems also builds confidence and responsibility.

Encouraging Growth and Independence

Parents can encourage and enhance growth throughout college and emerging adulthood by creating a plan for each stage and communicating this to their child. Knowing what they are willing to provide and when they expect their child to be independent can help parents set their child’s expectations and potentially create a smoother path to adulthood.

Below are some topics to think about and discuss with your child.

College Age
Will your child stay on your cell phone plan? If so, will you pay all or part of the bill? If your child is home working for the summer, is there a savings goal you expect? What will you pay for (e.g. food, housing)? What will she pay for (e.g. transportation, social activities)? If your child has an unpaid internship, will you expect her to get a part-time paid job as well? Will you provide her with spending money?
Emerging Adult
Is your child moving home after college, or will you subside her housing? What is your timeframe for having her live with you? Are there strings attached the gifts you give? For example, do expect your annual exclusion gifts to go to savings, or is dinner out OK? Are you expecting your child’s fiancé to sign a prenuptial agreement? Do you have a plan for broaching the subject? Do you have advisors who can help guide you through out the conversation?

At Brown Brothers Harriman, we believe the value of money is a learned concept; no one is born with it. Parents who consciously engage in these conversations can help children transition into adults who understand the value of a dollar. We work with clients to create a communication plan for their financial legacy. Our tools help clients consider what they would like their children to know about their wealth and their values. Together, we construct practical plans for each life stage. Research shows that deliberately preparing children to steward wealth is the key to success, and financial education is the foundation.

¹ For more information on working with your young adult child to create a budget, read “Learning to Launch: The Benefits of Building a Personal Balance Sheet” in this issue.

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A Guide to Talking to Children About Money: College and Emerging Adults

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