College money all at once or allotted over time?
I received a very interesting question from a reader this week. Marsha asks:
If a child has money given to them for college, should it be
literally given to them, or slowing allotted to them? Please explain the
answer. Seeking wisdom….
Well, I’m not sure if I would be considered wise or not, but I certainly have an opinion and here’s what I would do:
I would allocate it over time. As I read your question, the wisdom of Luke 16:10 came to mind:
Luke 16:10 – “Whoever can be trusted with very little can also be trusted with much.”
While most of us are adults when we get to college, we’re young adults and in many cases new at managing large sums of money and still somewhat immature when it comes to life in general. The primary reason I would allocate it is to help the student manage the money. The temptation for a young student to use those funds for things other than college is just too great. Having been a young college student a few years back (okay, maybe more than a few years), I wasn’t financially mature enough to manage a large lump-sum of cash. Help them become trusted with with “very little” first so they can manage much later.
Managing the college funds
Here’s how I would manage and allocate the college funds:
- Work with the student and involve them so they can learn – Make sure that you involve the student in each and every step of the process. This is a great opportunity to help them learn to manage a large windfall of cash and teach them how they can make the money work for them in the short term. This is also a great opportunity to help them create and follow a budget and learn how to allocate out the money to last the duration.
- Make a budget – Lay out how the money will be spent on a month to month basis. I would go ahead and do this for the full 4/6/8 years, based on the type of degree they are getting. Things to include are: tuition, housing, food, books, computer, furniture, gas, etc. Work with the student to come up with the various different expenses and allocate money to them. Doing so will help you identify whether the money is enough, where you may need to cut-back or maybe even where you have excess. The budget will drive how money is allocated to the student on a monthly or weekly basis.
- Determine where the money will be kept – This depends on the age of the child now. For a younger child that is still a few years away from college, I’d place the money in a high-interest bearing CD. If the funds will be immediately required, than I would place the money in a high-interest bearing savings account. I would also establish a checking account, and set-up an auto-transfer to the checking account. I would not place the college money in the students name, this is again to avoid temptation.
- Consider any tax implications – You didn’t specify the amount, but I would make sure you consult a tax professional to understand any tax implications as well. I’m not a tax expert at all, and there may not even be any implications, but it surely wouldn’t hurt to understand this so you aren’t caught off guard down the road.
With all of that said, I think it’s awesome that you are having to ask this question! Having been someone that worked some of their way through college, what a blessing to have college expenses paid for! Make sure your child/student understands how great of a blessing this is and the opportunity this gift provides. Going into a career student loan free, and with a fully paid for education will really give them a head start financially. Make sure they take advantage of the opportunity.
Thoughts from readers
Thanks for the question, and I hope I’ve provided some “wisdom” as requested. I’d like to ask my readers to chime in as well: Do you agree with my take? What other considerations have I missed? Add a comment and help Marsha out!
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