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Wait! Don't Spend That Graduation Cash Just Yet


Let's turn now to matters of personal finance. Graduation season is here, and many newly minted graduates are hoping that there's more in those cards than the well wishes of aunts, uncles and godparents. Yes, we're talking money. There's likely to be a $20 bill or two for high school grads and, perhaps, some more serious cash for those who are finishing college or graduate school.

But before you go and throw down on some new audio equipment or, dare we say it, shoes, we'd thought we'd like to ask our money coach Louis Barajas for some tips on what graduates should do with that windfall. Welcome back. Thanks so much for joining us once again.

LOUIS BARAJAS: Thank you, Michel.

MARTIN: So first of all, let's talk about the givers, and then we'll talk about the receivers. How about that?


MARTIN: So do you have a rule of thumb for how much money you think it's wise to give to a high school graduate and then a college graduate?

BARAJAS: Yeah. On giving I actually don't have a rule of thumb. My parents, my dad in particular, gives my daughters money all the time. And I don't know if he's trying to buy their affection or he's just, you know, giving them lots of money. But it just depends on each parent and each grandparent or relatives based on how well they're off and how much they're willing give and how great the students have done in school and their grades.

MARTIN: So let's then talk about the students. Let's talk about high school students. Let's say, do you have any general advice for what to do? 'Cause you can imagine where a kid would say, you know, I've worked hard. You know, this is my money. I should get to do whatever I want - you know, go on a beach trip or blow it on shoes. What would you say to that?

BARAJAS: Well, you know, it's interesting. Once they've graduated from high school and they've applied for college and getting ready to go in there, it's becoming a very competitive environment out there for people. And when they go into college, maybe they might want to think about using the money that they've received instead into buying, what I call, tools to make them more competitive in college or maybe upgrading their laptop or using something that they're going to be using towards college to become better students.

MARTIN: If the student is in high school and is going to college, or even if they aren't - I mean, if they don't have a savings account or a checking account, is that the first thing that they should do?

BARAJAS: Absolutely. What happens is we need to teach every child that there's different purposes for money. Some of it is for having fun and spending it, obviously. But you've got to take a certain portion of it and save it for the future.

Use it - because sometimes we'll see some kids early in the first year of college who already have credit card debt. And we have to show them that you've got to pay down that debt. But the first thing I have them do, if they haven't done it so far, is open up a savings account.

MARTIN: So let's talk college graduates now. Their financial needs might be completely different than, you know, a high school student. They might be - what? - moving into a first apartment, moving to another city. Any sort of basic advice for that new college graduate?

BARAJAS: Right. Obviously, outside of the emergency fund and paying the credit card debts and student loans, you know, one of the things that I've told them if they graduate from college and they're going to go into the workforce, is what about buying your first professional wardrobe. For a gentleman, it might be his first suit. For a woman, it might be her first professional dress for interviewing.

You know, when I went to UCLA, all I owned was Bear Wear. That's all I could afford at the time. I didn't have a suit. I didn't own a tie. And sometimes we need to use some of that money to invest in ourselves.

MARTIN: What about starting off a retirement fund early? I know that may sound crazy to a new college grad. But what about, you know, opening up an IRA or something like that? Do you think that's a good idea or not?

BARAJAS: Absolutely. In fact, you know, my daughter's graduating from college this year, and I've encouraged her to open up a Roth IRA this year. That's a wonderful thing as well.

You know, another thing, Michel, is that I've actually asked students if they've never traveled - for example, if they've come sometimes from areas of poverty, they can use that money to do some traveling. I've encouraged some of the kids to use some of their money that they've received from graduation to take a trip to Europe with other students and really understand who the world's working. I think that's sometimes a good investment that we don't even think about.

MARTIN: Do you feel that students should discuss this with their parents? I mean, I know that in some - well, some families that I've known, for example, when kids get a big financial gift, they're expected to turn it over to their parents to kind of repay them.

Other people would just find that crazy. They'd say, well, no. I mean, that's the whole point of giving the student the money or the kid the money so that they can learn how to use it, even if they wind up making mistakes. What are your thoughts about that?

BARAJAS: Well, again, it just depends on the family and how well-to-do the family is or how they - but when somebody gives you a gift, it's for you. It's not to - an obligation to pay back. My feeling is that it's your money. You're supposed to do what you want to.

If you really want to help your family back out, then that's fine. But again, the purpose is to find its highest and best use. And if we can teach kids from an early age to do that, then they're going to have a much better financial future.

MARTIN: I liked what you said there. Can you just say that again? So is that, like, the first thing you say, you should take that money and say what's the highest and best use of this? Is that what you do whenever you get a lump sum of money for whatever - for whatever reason?

BARAJAS: Absolutely. Whenever I sit down with anyone - and we find what is called found money or windfalls - we'll always ask them, what's your highest and best use for this money? Is it for marriage counseling, if it's for older people? If it's for college students, is it paying down your debt? Is it investing in yourself?

How can you maximize the value of the money that you've received to make you a better person or to do something for yourself or for others? And again, that's just the training ground to get your mindset in the proper way for getting more money when you start earning more in the future.

MARTIN: What if you get a small amount like a - you know, $100, for example? And, you know, you, I think, and other financial advisors have said, if you get some crazy windfall like a lottery payout or something like that, sometimes it's best to set a portion aside and to blow it just so you can kind of take the steam out of it, right? Do you recommend that for kids, or do you think no? No, it's really best to try to be as disciplined as possible no matter how much you have.

BARAJAS: No, actually it's the opposite. When we set goals - and, for example, a child has had trouble passing their math classes and all of a sudden they've passed algebra. They've graduated from high school or they've graduated from college, and it was a huge accomplishment, you need to focus on sometimes celebrating. We forget to celebrate our victories.

And it's a great thing because once we celebrate it, then we can set another bigger goal. It might be the child now wanting to go and getting their Master's degree or getting a job in another country. And again, it's wonderful to use money to help celebrate. And also, another important thing is to celebrate with others.

MARTIN: What I think I hear you saying is it doesn't have to be something that you hold in your hand. It doesn't have to be a thing. It can be an experience. And that you should see that as equally valuable, if that's something that would improve your life, right?

BARAJAS: Well, academic research tells us that sometimes the highest and best use of money and for money to make you really happy and to enjoy memories in the future is to be used for experiences. And I truly believe that. And that to me is something that's a foundational part of creating a really successful financial future.

MARTIN: Can I put you on the spot for a minute?


MARTIN: What's the dumbest thing you ever did with a windfall? And what's the best thing you ever did with a windfall?

BARAJAS: The best thing that I've ever done for a windfall, I guess, is taken a leap of faith to start my own business, to start my own firm because it really took a lot of money to do that at the beginning. The dumbest thing I've ever done was blow it on, like, an expensive watch.

I think I read in one of those motivational books that said a man must have a nice watch and nice shoes, right? So I said, OK, I'll just buy myself a nice, professional watch. It ended up costing more money than I thought it was going to be. So that was a dumb thing.

MARTIN: And now you use your phone to keep track of the time, right?

BARAJAS: Yeah, actually I do. Yeah. Funny enough, right?

MARTIN: Right. Louis Barajas is an author and personal finance counselor. He joined us from Irvine, Calif. Louis, thanks so much for joining us.

BARAJAS: Always my pleasure, Michel. Transcript provided by NPR, Copyright NPR.

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