This is back-to-school season — talk to your student about money

The start of the school year is quickly approaching. If you have a child entering college or the workforce this fall, now is a great time to talk about money. Consider the tips below to guide the conversation:

Help your child establish a budget for the next phase of life. A new phase of life often brings a new set of expenses. Begin by exploring the new costs your child may incur and offer to sit down and help them create a budget. For high school graduates, new expenses can include tuition for college, textbooks, housing, food and discretionary spending. Online estimators can be useful tools to discern how to allocate funds by category. If you typically covered your child’s expenses throughout high school, educate them on what a typical grocery bill or trip to the movies can cost. This will help them gain perspective on their expenses going forward.

Set financial expectations. As your child grows toward financial independence, it is beneficial to have a conversation with them about what help they can expect from you, if any, and what costs they are responsible for.

• If your child is headed to college or trade school, discuss how tuition will be paid for and whether you’ll cover any associated room-and-board expenses, technology fees, travel to return home, etc. Can your child rely on scholarships or help from a 529 plan? Will they need to pick up a job? To help answer these questions, encourage your child to fill out the Free Application for Federal Student Aid (FAFSA). All students can apply regardless of their family’s financial status. The FAFSA process will let your child know what federal financial aid may be available to them. If loans need to be taken out by you, your child or both for school, review the terms, including interest rates and payback schedule.

• If your child is headed directly into the workforce, discuss how to approach paying for rent, commuting to work, and other common expenses. Determine if your child can look to you for help in their first few months of expenses as they get on their feet. Discuss what bringing home a post-tax paycheck looks like and advise on saving and spending income. Also suggest starting a ROTH IRA and/or ROTH 401k early.

Consider alternate ways to help your kids. While it’s natural to want to support your child as much as you can, it’s important to think about how to thoughtfully transition the financial responsibility to their shoulders over time. As a starting point, consider the difference between funding a key milestone — such as college tuition or a car that’s necessary for their employment — and funding ongoing daily lifestyle expenses or wishes, like concert tickets or meals out. Some parents desire to cover all expenses while a child is in college so they can focus on their education. If you share this viewpoint, set any boundaries and decide an end date of when they will be fully responsible for their own expenses — perhaps at graduation or when they land a full-time job. Additionally, when a large expense arises like a new car or graduate school, consider co-signing a loan instead of writing a check. This approach can help them lock in a lower-interest rate or more favorable repayment terms, while encouraging some financial independence.

Set boundaries for future milestones. Once expectations are established for the financial responsibilities in your child’s next phase of life, have a conversation with your spouse or partner about how you’ll handle future milestones, such as a wedding or home purchase. Giving money to adult children can be a sensitive subject, and it’s an important one to be on the same page about. If you and your partner have work to do to align your viewpoints you’re not alone: recent research from my firm, Ameriprise Financial, found that 72% of couples support adult family members financially — yet 14% of couples disagree on how much financial support to give. Have open dialogue about how much monetary support is important to you to provide and consider putting a financial plan in place to guide future decisions.

The back-to-school season is a great time to consider what financial preparedness looks like in the next phase of your child's life. Know that your financial adviser is there to help you establish your financial strategy and comfort level with helping your children financially while staying on track to meet your biggest goals.

Chris Thompson, CFP, CMFA , CRPC is a private wealth adviser and managing director with Ameriprise Financial Services, LLC, in Ponte Vedra Beach, Florida. He specializes in fee-based financial planning and asset management strategies and has been in practice for 32 years. To contact him, go to ameripriseadvisors.com/Chris.thompson, email chris.thompson@ampf.com, call 904-380-2290. The address is 818 A1A N, Suite 301, Ponte Vedra Beach, FL 32082.

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About the research

The Couples, Money & Retirement research was created by Ameriprise Financial and conducted online by Artemis Strategy Group from Jan. 3 to 26, 2024, among 1,510 American couples (3,020 total respondents) with $100,000 or more in investable assets. Primary respondents were between ages 45 and 70 and within 10 years of retirement. For further information, including verification of data that may not be published as part of this report, contact Ameriprise or go to ameriprise.com/couples.

Artemis Strategy Group is not affiliated with Ameriprise Financial, Inc.

Investment products are not insured by the FDIC, NCUA or any federal agency, are not deposits or obligations of, or guaranteed by any financial institution, and involve investment risks including possible loss of principal and fluctuation in value.

Securities offered by Ameriprise Financial Services, LLC. Member FINRA and SIPC.

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