Launch your college graduate

May 18, 2011: 9:47 AM ET
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(Money Magazine) -- Parents of the class of 2011: Your timing is impeccable.

After the ugliest job market in decades, the outlook is improving, just as you're sending your child out into the working world. Employers expect to hire 19% more recent college graduates this year than last, reports the National Association of Colleges and Employers. Not only that, average starting salaries are up 6%, to $50,500.

Of course, as good as this news is, you know it doesn't guarantee that your child is on a straight path to Happily Ever After. Recent grads face many financial hurdles beside the obvious one of landing a job (which may still take months). Kids now come out of college with an average of $24,000 in student debt. And most have little experience budgeting, unless you count making sure there's beer money for Friday. No wonder a recent study for American Express found that 57% of twentysomethings are still financially dependent on Mom and Dad.

Clearly, your days of coaching aren't over yet. So offer your child the advice that follows - worth more in the long run than any handout.

Help with budgeting

For the first time, Junior will have real income -- and real bills. "Your kid may think $40,000 is a lot of money, but things add up, like the rent and taxes he never paid before," says Ramit Sethi, the 28-year-old author of "I Will Teach You to Be Rich."

Rather than lecture about balancing a check-book -- and seeing the eyes roll -- encourage your child to join Mint.com, a trendy budgeting tool aimed at Gen X and Y. The site, also available as a mobile app for your hyperconnected offspring, uploads transactions from a checking account and automatically tracks spending in various categories, like restaurants and shopping. It'll even alert the user when a category nears a threshold he or she set.

College graduates have a tough job search ahead

Make a debt bearable

Imagine being 21, on your own for the first time, and living under the cloud of $20,000 in student loans. Stressful, right?

Suggest moves that might ease your child's anxiety: If he's in a low-paying job, he may qualify for income-based repayment (ibrinfo.org), which caps the monthly nut at 15% of discretionary income.

Not an option? Consolidating loans and stretching out the term will reduce the monthly payment. For example, extending unsubsidized Staffords from 10 to 20 years drops the tab by a third. The downside: Interest over the life of the loan more than doubles, says Mark Kantrowitz of FinAid.org.

So nudge your kid into some long-term thinking. Does he want to be paying loans into his forties? (To avoid that, he could pay extra as his salary rises.) Or can he handle a few years of tight living until he's making more money?

Begin weaving a safety net

New grads don't realize how quickly a crisis can upend their fragile budgets. Help your child see the light by asking how she'd pay for a new muffler if hers fell off the car tomorrow. Then, once she's stumped, introduce the idea of emergency savings.

The ultimate goal is six months of expenses, but put that in dollar terms. Together, devise a plan to get there, open a savings account and set up automatic transfers from checking, says Cincinnati financial planner John Evans.

In a perfect world, your child lands a job with health insurance right away. But if that's not the case, you can swoop in with an easy fix: Thanks to last year's health care laws, your child can stay on your employer's plan until age 26, as long as she can't get insurance through a job. And if you already have family coverage, adding one more may not cost a dime.

One caveat: If she isn't on the plan now, you may have to wait until open enrollment. Get a short-term policy -- via gradmed.com or ehealthinsurance.com -- in the meantime.

Put retiring on the radar

Good luck getting your grad to care about retirement, says Sethi. That's 40 years off, and if he's saving at all, it'll be for something fun, like a trip to Thailand.

Instead, appeal to the fantasy of getting rich. Note that stashing a mere $99 in a 401(k) biweekly would make him a millionaire in 40 years, assuming a 50% match and an 8% average annual return. (You can get him to bump up contributions later.)

Up the ante by offering to match his savings in a Roth IRA, if you can swing it, says Evans. When it comes to selecting investments, "you won't get far talking about asset allocation," says Sethi. "Just pick a target-date fund and get on with your life." These ready-made portfolios grow more conservative as retirement nears.

Know when to step in

Never subsidize your child if it means shortchanging your own goals, warns Denver area financial planner DeDe Jones. Even if you can afford to give money, do so with caution.

"The more support provided, the longer the dependency period tends to be," she says. You might first help your child see ways to cut costs, like moving home temporarily.

Rather give cash? Follow Jones's rules: Help only with critical things, like food or health care. Set expectations upfront regarding the time frame and amount of aid.

Finally, give your kid just enough to help him get by, but not enough to make him relax. The goal is to get him off your books, not make him permanent.  To top of page

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