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Your Finance: Helping new grads handle cash gifts

There is a jarring lack of parental control

There is a jarring lack of parental control when high school and college seniors come into some cash upon graduation. Credit: iStock

There is a jarring lack of parental control when high school and college seniors come into some cash upon graduation -- anything from a $100 check from Grandma to multimillion-dollar inheritances.

"You have to go for less of a parenting, finger-pointing mode and talk to them as an adult -- that's what they are now," says Rachel Cruze, who co-authored the book "Smart Money, Smart Kids" with her father, financial guru Dave Ramsey.

Mostly, good things happen with the money. According to college loan purveyor Sallie Mae, about 25 percent of parents say that at least some high school graduation gift money ended up paying for college expenses.

While it's still a little scary for parents to lose control, here are four strategies to make sure that new young adults handle graduation gifts responsibly.

Test with small amounts: Many parents try to teach their kids healthy spending habits with allowances, which pays off when they hit young adulthood. Jill Totenberg, mom to a high school senior in New York City, started her daughter off with $5 a week in third grade, then upped it to $80 a month in high school.

Now, the 18-year-old has a bank account with a debit card and is learning to manage a credit card. Mom is pretty confident that any graduation gifts will go straight in the bank. "She totally gets it," says Totenberg.

Rollover into a trust: When higher dollar amounts are involved, young adults face pressure from families and financial advisers to lock the money up, especially for minor accounts that turn over to the child at age 18 or 21, depending on state law.

Some parents convince children to roll their newly acquired funds into a family partnership or trust. Many of the trusts set limits preventing the youngsters from getting anything unless they complete tasks, like graduating or starting a business. Sometimes children can only take out as much money as they earn.

The cost of setting up a trust with an estate attorney will depend on how much money is invested, and ongoing professional money management will cost an annual fee of around 1 percent of assets.

Allow a little splurge: Totenberg is expecting her daughter to be responsible but also allowing for fun. "She may buy some shoes or some ridiculous gift pack from Sephora that is all pretty packaging -- something she knows I'll never buy for her," she says.

Direct gifts from family members: One stealth way to maintain a little control over funds is to direct family members toward appropriate noncash gifts, such as luggage, clothing or a laptop.

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