How not to blow that high school grad money

It's been three years, but Lauren Witte is still benefiting from the high school graduation party that her parents threw for her.

Every day, the 20-year-old University of Minnesota student logs onto the $1,500 MacBook Pro that she bought with cash she received from her family, friends, teachers and coaches in her hometown of Luverne, Minn.

"In a small town, everyone knows everyone, so about 300 guests came," the psychology major said. "Since sixth grade, it was my dream to attend the U and people knew that. The cost of college is ridiculous, so I'm thankful."

The grad party has become a rite of passage for almost every Minnesota high school student who dons a cap and gown. Along with a picture cake and a shrine of photographs documenting the graduate's coming of age, open houses inevitably have a basket placed in a prominent place to collect the congratulatory cards, some with a bit of money tucked inside.

That money can add up to hundreds, even thousands of dollars, resulting in a big payday for students — and sometimes a headache for parents.

"You hear stories about how it becomes a tug of war between the student and the parents. Whose money is it and how should it be spent?" said Jim Eisenreich, who teaches money management at Eden Prairie High School and is the Minnesota president of the JumpStart Coalition, which promotes financial literacy. "Once they're 18 and their name is on the check, the parents have less control."

That wad of cash often represents the first significant windfall in a graduate's life. And the temptation to blow it is real.

"I blew it on stupid kid stuff, chilling with my friends. Music, shows, the casino," he said from behind the counter at his job at a Dinkytown pizza shop. "I wish I had that money now."

There is little formal guidance for families seeking strategies for managing this money. The Internet is filled with information about throwing a memorable high school graduation celebration; Pinterest alone has hundreds of party tips, food ideas, decoration choices and invitation suggestions. It's easy to find recommendations for guests about how much money to give, but little to no information for grads on how to handle their big payday.

"It feels like winning the lottery to them," said Nathan Dungan, founder of ShareSaveSpend, which teaches money strategies to families through books, seminars and a website, Sharesavespend.com. "But on what planet does an 18-year-old know how to handle that?"

Dungan finds that families who have previously established guidelines about finances and goal setting are better positioned to handle a sudden influx of cash. But for families less skilled at saving, he sees graduation as an opportunity for parents to deliver a real-life lesson.

"Young people need financial guidance, parameters, expectations. It's coaching," he said. "Parents should anticipate this money is coming and set a plan with their child before they are opening the cards and counting it up. It's very important to talk about it ahead of time, to say, 'Let's think about what's reasonable.' "

"Today, kids are rewarded all the time. If they've done well in school and they worked hard, we want to give to them," said Eisenreich. "From there, we start talking about what they deserve, and parents could justify letting them spend it on themselves. But they need boundaries and help to see the consequences of their choices."

Those choices can determine how much money they will ultimately need to borrow. According to the Project on Student Debt, 70 percent of American students left college with loans to repay. In 2012, the average debt was $29,400.

"Kids this age can't see the big picture of where this debt takes them," Eisenreich said.

In some families, parental expectations rule.

"My parents told me all the money had to go to something college-related," Witte said. "My thank-you notes said, 'Thanks for supporting my education,' and it was the truth."

"This sets a pattern for the future," Dungan said. "It prepares them for being responsible with a real-life windfall, like getting a tax return. I also like to urge them to share a small amount of it — maybe 2 to 5 percent. Tying this experience to a cause they care about can be very meaningful, and establishes another good lifelong habit."

Dungan finds that young adults are interested in participating in money conversations and are sometimes even eager to learn more about finances. He maintains that parents who instill financial values in their graduates give them a gift that will last long after the checks have been cashed and spent.

"We know that money is the No. 1 source of stress for adults — and stress is the No. 1 cause of health issues," he said. "Parents need to realize that spending and saving decisions have far-reaching implications to their child's well-being. Getting it right — or wrong — will impact their quality of life."