Back-to-School: Financial Tips for the Whole Family

Sam Genzink
Aug 11
4 min read

Mother holding childs hand going to school

As summer quickly winds down, students and parents alike are beginning to look ahead to a new school year. While this season brings excitement and fresh routines, it can also bring added expenses. Before the back-to-school rush begins, consider putting a few smart financial habits in place to help you and your family stay on track all year long.

Teaching Your Kids About Money Management

Back-to-school season is a great opportunity to introduce or reinforce key money management habits with your children.

For your younger kids, consider turning back-to-school shopping into a real-life budgeting lesson. Give them a set spending limit and a list of items they need to buy. Walk them through their options and let them experience opportunity cost and the trade-offs first-hand. It’s a practical way to teach financial decision-making while controlling your spending.

For your teenagers, consider introducing them to more advanced lifelong financial topics. Help them set up a bank account and a debit card, teach them the importance of saving and budgeting, and encourage them to get a part-time job to earn some “fun money.” These lessons build financial responsibility and independence.

It is never too early, or too late, to begin building financial literacy!

Budgeting

The start of a new school year is also a great time to revisit and refresh your budget. As life gets busy, it’s easy to drift away from the financial goals you originally set. Before the school year kicks off, take a moment to review your current spending and savings targets to ensure they still align with your long-term financial plan.

Back-to-school season often brings added expenses: school supplies, clothes, extracurricular activities, and more. To stay ahead of these costs, consider creating a sinking fund specifically for school-related spending. By setting aside a small amount each month, you can reduce stress and be better prepared for unexpected expenses throughout the year.

Saving Strategies for College

Back-to-school season is also a great reminder of the importance of saving for college—if that’s one of your financial goals for your family. When it comes to college savings, there are several common vehicles to consider, each with its own benefits and considerations.

These include:

529 Plans
Coverdell Education Savings Accounts (ESAs)
UGMA/UTMA custodial accounts

Each option offers unique features in terms of tax benefits, flexibility, and control over the funds. If college savings is part of your long-term plan, it’s worth exploring which of these accounts best fits your goals and timeline.

529 Plan

A 529 Plan is a tax-advantaged savings plan that can be used to pay for qualified educational expenses. These include certain K-12 educational expenses, college tuition, room and board expenses, and books, among other things. If the funds are used for qualified expenses, they can be withdrawn tax-free and penalty-free. If they are used for non-qualified expenses, they are subject to federal tax and a 10% penalty.
A 529 Plan also has some unique flexibilities. It allows for a change in beneficiary if the initial beneficiary does not use all the funds. Additionally, legislation was recently passed to allow a 529 Plan to be rolled into a Roth IRA for the beneficiary, tax-free and penalty-free. These can both be extremely advantageous options if the beneficiary receives a scholarship or decides college is not the route for them.

Coverdell ESA

A Coverdell Education Savings Account (ESA) is another type of investment account that can be utilized as a savings vehicle for the future of a minor child. They can be funded up to the child’s 18th birthday and have to be emptied by the time they are 30 years old. Similar to 529s, Coverdell ESAs allow the beneficiary to be changed to another member of the beneficiary’s family. Many people prefer Coverdell ESAs because of low fees and the variety of investment options available. These attractive features allow much more flexibility and control over where the money goes and how much it can grow.
However, there are very stringent income requirements for contributions. Contributors can only make the maximum annual contribution of $2,000 if their income is below $95,000 (single) or $190,000 (joint). Those with income between $95,000 and $110,000 (single) or $190,000 and $220,000 (joint) may only make partial contributions. If income exceeds these thresholds, contributions cannot be made.

UGMA/UTMA

Another option that is growing in popularity is UGMA (Uniform Gifts to Minors Act) and UTMA (Uniform Transfers to Minors Act) accounts. UGMA and UTMA accounts are custodial accounts where only a minor can be named as the beneficiary of the account. These accounts are essentially the same, with the only difference being that real estate can be included in a UTMA account.
Anyone can contribute to these accounts as there are no income restrictions or contribution limits, aside from the $18,000 tax-free annual gift limit. When the beneficiary reaches the age of 18 or 21, depending on their state of residence, the custodianship ends, and the account becomes their sole property. In Michigan, this occurs at 21 years old.
Since UGMA and UTMA accounts are treated as irrevocable gifts to the child, the beneficiary cannot be changed. A potential drawback of these accounts is that if the funds are intended for educational expenses, they must be listed on FAFSA as the child’s property. This can limit the amount of financial aid the child receives by up to 20%.

Where Should I Start?

There is no one-size-fits-all answer to this question. The first step in your back-to-school financial refresh depends on your specific goals and situation. If you need guidance on where to start and how to do so, we are here to help. Reach out to one of our advisors and schedule a 15-minute introductory call to discuss your needs.