Q. My 18-year-old son has a summer job and he goes to college. He wants to use his earnings for spending money but I want to supply him with money so he can save his. I don’t want to fight with him but I want to give him the help my parents never gave to me. What should I do?
A. When a child goes to college, it’s a great opportunity to talk about budgeting and money management.
Because really, what kids learn in high school isn’t nearly enough to put them on a smart financial path.
“Maybe some sort of compromise can be struck with how much of what he earns he should feel comfortable spending and how much he should save for future purchases or just to be in the habit of having a buffer in the bank,” said Brian Power, a certified financial planner with Gateway Advisory, LLC in Westfield.
He said a good rule of thumb is to try to save 20 percent towards financial goals. Maybe he wants to eventually buy a car or even start to save for a house or retirement.
Power said if he saves 20 percent of what he earns, he can take 50 percent of what he earns to pay for necessities he is responsible for, such as college tuition, rent, books, etc. The remaining 30 percent could be used for entertainment and other discretionary expenses.
If he doesn’t have a lot of necessity expenses, then you can move the ratios around as you see fit, Power said. But a minimum of 20 percent savings would be good to build healthy savings habits.
Power says if you want to help your son, you could put money in a Roth IRA for him.
“This might be a wiser way to make sure money actually gets saved versus you paying for his expenses and leaving it up to him to save,” he said. “You can save as much as $5,500 into a Roth IRA in his name as long as your son earned that much or more during the calendar year.”
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