Mastering Money Management: A Guide for College Students and Their Parents

There are millions of articles about 529 college savings accounts—and with good reason. They’re a powerful way to grow money tax-free for qualified education costs. However, while 529 plans can cover tuition, room and board, and fees, they’re not designed for a student’s discretionary spending. So how do you help your college student manage everyday spending money without getting late-night “send cash” calls?

What 529 Plans Cover- and What They Don’t

529 plans can be used for qualified education expenses such as:

• Tuition (K–12 limits apply) and college tuition

• Required fees, books, supplies, and equipment

• Room and board (with enrollment requirements)

  
  

They do not cover discretionary purchases like entertainment, dining out, ride shares, or general “spending money.” Using 529 funds for nonqualified expenses can trigger taxes and penalties—never ideal.

Why a Separate Savings Account Helps

Opening and funding a simple savings (or linked checking) account can nicely complement a 529 account:

• Parent/guardian visibility on activity

• Flexible, ongoing transfers as you see fit

• Student can add funds from work, gifts, and summer earnings

• Relatives can contribute easily for birthdays or milestones

  
  

Beyond flexibility, this approach teaches budgeting and responsible money management—skills students need long after graduation.

Understanding the 529 Investment Glide Path

Many families use an age‑based (glide path) investment option that gradually becomes more conservative as college approaches. For example:

• Early years: ~95% stocks / 5% bonds

• Near college: as conservative as ~10% stocks / 90% cash/bonds

  
  

This protects principal over a compressed “lifetime,” but it raises a practical question in the later teen years: does it make sense to shift remaining contributions for discretionary needs into a savings account instead?

Age 17–18: Practical Decision Points

By senior year of high school:

• Confirm forecasted qualified costs (tuition, fees, room/board)

• Estimate discretionary spending needs (see quick budget below)

• Consider routing new contributions for discretionary needs to a savings/checking account with debit controls

• Keep 529 funds focused on qualified expenses to avoid penalties

  
  

How Much Spending Money Do College Students Need?

Every campus and lifestyle is different, but a simple monthly framework helps:

• Dining/food outside plan

• Local transport/ride share

• Social/entertainment (2–3 events)

• Personal care and school incidentals

• Buffer for miscellaneous items (10–15%)

  
  

Tip: Start with a modest baseline, review after the first month, and adjust together.

Simple Setup: Steps to Open the Account

1. Choose account type: Savings plus a linked student checking with a debit card and spending alerts.

2. Set visibility and controls: Parent view, low-balance notifications, and transaction alerts.

3. Automate transfers: Weekly or monthly “allowance” tied to a student budget.

4. Add funding sources: Student income, gifts from relatives, summer earnings.

5. Review monthly: Quick 10-minute update to reinforce good habits.

   
   

Bryan Knutson's Guidance

I’m a huge advocate for 529 plans—and for teaching financial responsibility. For many families, adding a separate savings/checking account for discretionary spending keeps 529 dollars focused on qualified costs and reduces the temptation (and risk) of using 529 funds for nonqualified expenses.

The Importance of Financial Education

Understanding money management is crucial. Teens need to learn how to budget, save, and spend wisely. This knowledge will serve them well in college and beyond.

Building Confidence with Money Skills

By pairing a 529 plan with a dedicated savings account, students can learn to manage their finances effectively. They will gain confidence in making financial decisions and avoid common pitfalls.

Encouraging Open Communication

It’s essential to maintain open lines of communication about money. Discuss spending habits, budgeting strategies, and financial goals regularly. This dialogue can help students feel more comfortable managing their finances.

Action Items

College is a learning lab for money habits. Pair your 529 with a dedicated savings/checking account for discretionary spending, keep gentle oversight in place, and let your student learn—with manageable mistakes to be expected along the way.

Explore budgeting tools and techniques in our Money Skills workshops. See details and register.

By taking these steps, you can help your teen successfully navigate their financial future.