Money Basics for Your High School Graduate

Physician's Money Digest, September 2005, Volume 12, Issue 13

While many teensare adept at usingthe ATM machine,few are preparedto take control oftheir personal finances once they are ontheir own at college. It's important thatyour child be able to handle financialbasics without your help, particularly ifthey're attending school far from home.You don't want to be fielding creditorsor getting calls from your child askingfor money for every incidental expense.

The following is a strategy for gettingyour child up to speed during thesummer months so that they will beready to take responsibility once theyleave for college:

•Establish a spending account.Set your child up with their ownchecking account and make sure thatthey know how to use the check registerto track deposits and withdrawals,keep a running balance, and reconcilethe account monthly.

•Set up a budget. Work withyour child to establish a monthlybudget for the summer. For a samplebudget for college students,, click on the "ResourceCenter," then click on "Budgetfor College Students." Some of theitems will not apply until your childactually goes off to college, but thiswill get them used to working with theform. Be sure to clearly define whichexpenses your child will be responsiblefor paying, including clothes, entertainment,gas, and incidentals such ashaircuts and makeup.

•Have your child acquire a creditcard. As much as you might dislikethis idea, credit cards are a necessarypart of our world. The key is teachingyour child to use them responsibly.Whenever your child uses the creditcard, have them enter the chargedirectly into their check register just asif they had written a check. Instead ofwriting a check number, have themwrite the credit card initial (eg, "V" forVisa or "M" for MasterCard) and subtractthe expense amount directly fromtheir balance. This will allow them toaccurately know how much moneythey have left until their next deposit.

Once their credit card bill comes,have them check off each item in theircheck register but do not subtract theircredit card payment from their balance,since this has already been doneon an expense-by-expense basis. Youshould insist that the balance be paidoff every month and on time. Withthis in mind, look for a credit cardwith no annual fees.

•Monitor their progress. Youmay be very good at handling yourown finances, but don't expect perfectionfrom your child, at least not initially.Remember that much of this will benew to them and there is definitely alearning curve. Be supportive and lavishwith praise regarding their successesand understanding when they fallshort. We were all financially illiterateat some point. Initially, you shouldmeet with your child once a week todetermine their progress. Focus on correctuse of the check register and followingthe budget. Once you see theyare on track, meet once a month eitherduring or after bank reconciliation. Ifyour teen is computer savvy, you couldrecommend that they use managementsoftware such as Quicken.

•Offer a reward. Let's face it,budgeting and managing your financesis not fun for most people, especiallyteenagers. But teenagers, like mostpeople, love to have extra money.Offer a financial incentive for successfullyfollowing the program. Forexample, give them an extra $100 amonth if they maintain an accuraterunning balance in their check registerand stay within their budget.

If you really want to prepare yourchild for success after they graduatefrom college, put some money in thebudget for investing and then helpthem set up an investment accountusing a no-load mutual fund. Be sureto show them how to follow theirfund's progress in the newspaper or onthe Internet.

, is the

founder of the Welch Group, LLC, which specializes

in providing fee-only wealth management

services to affluent retirees and

health care professionals throughout the

United States. He is the coauthor of J.K. Lasser's New Rules

for Estate and Tax Planning (John Wiley & Sons, Inc; 2001).

He welcomes questions or comments at 800-709-7100 or

visit This article was reprinted with

permission from the Birmingham Post Herald.

Stewart H. Welch III, CFP®, AEP