It is time for your child to go off to college and live on her own for the first time. There are a few simple steps that can make this new phase more manageable – at least when it comes to finances.
- Open a checking account: If your child does not yet have her own checking and savings account, this is a good time to start. Setting up a checking account in her name allows your child to take responsibility and view the inflows and outflows of her money.
- Build a budget: View the transition as an opportunity to talk to your child about what her expenses will be when she is away from home. This can be as easy as taking a sheet of paper and drawing a table that includes the months along the top and expense types (for example, books, meals and travel) on the left and then estimating the corresponding monthly costs. After totaling each month, you and your child will have a good sense for what is needed.
- Discuss money sources: Charting out expenses and determining what it costs your child to live on her own informs everyone and opens a dialogue around what options are available and appropriate. Discuss where your child’s spending money will come from. Depending on the child, she may have enough savings from her summer job, she may want to get a job on campus, or she may realize she needs some help from mom and dad.
- Determine an allowance: Parents often ask about allowances – specifically, how much to give. A budgeting exercise can illuminate that conversation. By writing down real numbers, you and your child can work together to see what balance works for her. Giving an allowance without your child knowing how that amount was calculated is a missed teaching opportunity.
- Give your child freedom: If you decide to give an allowance, depositing this amount directly into your child’s checking account every month gives her the responsibility to spend it as she wants. If she spends it all in one weekend, let her feel the consequences of her decisions. It is important to give your child the freedom to make these choices; allow her to make mistakes – and learn from them – when the stakes are low.
Transitioning to a life away from home can be full of unexpected changes, but money matters do not have to be one of them. At Brown Brothers Harriman, we can help facilitate these conversations and give the next generation tools to develop financial independence as they launch into adulthood.