College graduation is an exciting time and an important rite of passage that symbolically marks the student’s entrance into full adulthood, but complete independence from supporting parents may take longer depending on the graduate’s job and housing status. Even for graduates employed immediately, starting out on their own can be tricky, especially if they have little to no savings in the bank.
For parents, grandparents, aunts, uncles or family friends who are struggling to find an appropriate gift for a college graduate, cash may be the solution you’re looking for because it has the potential to make a lasting impact on their financial fitness. Just consider the various ways the graduate in your life could put a cash gift to good use.
1. Put it toward their student loan debt.
The Federal Reserve reports that approximately 30% of adults in the United States use student loans to pay for their education. Although there was a pause in student loan repayment requirements during the COVID-19 pandemic, which is now set to expire 60 days after June 30, 2023 (or, August 29th), typically graduates must start repaying most federal student loans after a six-month grace period post-graduation. Private student loan repayment varies by lender with some offering a grace period and others requiring students to make payments while they are still in school.
Either way, if your graduate took out one or more student loans for their college education, they are going to have to start repaying it sooner or later. A cash gift could give their budget a little cushion once their repayment schedule kicks in. Or it can be used to pay the interest that accrues during the lender’s grace period so that it doesn’t get added to the principal balance of your graduate’s loan.
2. Help fund graduate school.
Some graduating students may not be through with school after college. If plans for medical or dental school, an MBA program or other graduate degree is in your loved one’s future, they’re likely going to incur debt to pay for it. With that type of financial commitment staring them in the face, cash for graduation will be a welcome gift. Come to think of it, cash is probably a good idea for birthday and holiday gifts while they’re completing their graduate studies.
3. Start their emergency savings fund.
As the saying goes, life happens, meaning the unexpected has a way of sneaking up on us. Whether it’s a major car repair, broken cell phone that needs replacement or deductible for a trip to the emergency room, the cost of unforeseen events can add up quickly. Unfortunately, 44% of American adults couldn’t handle an unexpected expense of $1,000 or more because they lack adequate emergency savings, which should be enough to cover at least three months’ worth of expenses and preferably six months’ worth.
One way to help your favorite graduate avoid this all-too-common situation is by giving them a cash gift. You could even tactfully suggest that your gift be used for this particular purpose and explain why having an emergency fund is critical to avoiding financial stress that can affect one’s physical and mental wellbeing.
4. Plan for a place of their own.
Although it’s nice to have the option of moving back home with mom and dad to save money, many graduates can’t wait to return to the parental-free zone they enjoyed while away at school. However, without a solid moving-out fund, young professionals may be tempted to use a credit card to regain that independence. On the other hand, if close family and friends give them money at graduation, they can use that to help cover their moving-out expenses, which for renters will include the following, at a minimum:
- Rental application
- Security deposit
- First and last month’s rent
- Utility deposits
- Moving costs
- Food and furnishings
- Renters insurance
For the graduate who wants to buy their first home, your cash gift can help them build up their down payment fund.
5. Pitch in toward relocation costs.
Unless your graduate is offered a relocation package as part of a job offer somewhere away from their childhood home, they likely could use some help with moving expenses to their new city. In that case, a graduation card accompanied by cash, a check or a digital payment may be the very gift they need and will actually treasure.
How much money should you give for a college graduation gift?
If you’re now convinced that cash is the right way to go, you may be wondering what an appropriate amount of money to gift a college graduate is. Amounts vary by year, by location, and by the closeness of the relationship to the graduate (and you should always choose the amount that is right for you and your budget), but here are some averages based on recent publications. If the graduate is:
- A child of parents: $100-500
- A child of close relatives (for instance, grandparents): $50-300
- A distant relative: $50-100
- An older sibling: $25-50
- A younger sibling, acquaintance and/or friend: $10-20
Help your graduate get a healthy financial start in life.
Cash may seem less personal than a tangible graduation gift like a watch or an experiential one like a trip to a special destination, but it can make a great alternative if you can’t decide what to get your loved one or you know they need a monetary cushion as they get started in life.
Even if they don’t need it for the situations above, they can use a cash gift to open up a savings account, where their money is federally insured and earns interest. And although most savings vehicles are highly liquid, putting the cash gift in it helps shield the money from being used for impulse purchases.
More than any other graduation present, cash will help set your graduate on a steadier and quicker path to full financial independence and stability. And that’s a gift they’ll likely appreciate long after the occasion’s pomp and circumstance has died down.