Tips on how graduates should spend all that cash

Hats off to the class of 2010. As the last of this year's high school and college graduates tossed their mortarboards skyward in celebration this month, the congratulations poured in.

And in many cases, so did the checks.

Cash may sound crass, but it's what most students say they want.

Which is undoubtedly why most adults giving graduation gifts this year -- about 58 percent -- say they're giving money, according to a recent survey by the National Retail Federation. They're also feeling more generous, planning to spend an average of $89.95, compared with $88.01 last year.

Overall, 2010 graduation spending will top $3.9 billion, the NRF estimated.

That's a lot of pen-and-pencil sets.

For those lucky enough to instead be sitting on a stash of commencement cash, it can be tempting.

Katelyn Downey, who earned her diploma last month from California State University-Chico, was happily surprised by the generosity of friends and family. She received about $1,200 in cash and checks -- far more than she expected.

So what's she doing with her windfall?

"About half of my graduation money will be going to a plane ticket for Europe," said Downey, a communications studies and business management major.

But she's not being frivolous. To save on expenses, Downey moved back in with her parents after graduation. The 23-year-old is completing an internship -- unpaid -- at CSU-Sacramento and actively hunting for a retail job to save up for her trip.

"I've never been abroad before," Downey said. "It's such a tough job market; this is a perfect time to go and wait out the economy."

But Downey is also mindful of not blowing all her cash on a one-month European vacation. "I don't want to spend every penny I earn on this trip, so I'm hoping to still have $400 in my savings account when I come back home and start serious job hunting."

Setting up savings -- a little or a lot -- is exactly what financial advisers want this year's graduates to do. Here's more of their financial advice:

SPLURGE OR NO? A year ago, Bills.com president Ethan Ewing was advising graduates to take 10 percent of their gift money -- say $50 of $500 -- and splurge on something personal.

Not this year. "The recession's not over. And the need for good savings habits is not over," said Ewing, who oversees the San Mateo-based personal finance website.

The president of California's largest credit union has a similar pitch.

"It's very hard for kids to do, but I suggest strongly they set (graduation money) aside in a savings account and resist the impulse to spend it on something just for fun," said Teresa Halleck, CEO and president of Sacramento-based The Golden 1 Credit Union.

BE A SAVER: Not that you'll earn much with interest rates so laughably low right now, but it's the habit that counts, say financial experts.

"It's the emotional freedom that you can last without having to borrow ... the power of knowing you've got money in the bank, so if the unexpected happens, you've got security," said Halleck.

Most financial experts recommend keeping at least three months of living expenses in the bank, so you're protected from a financial fluke -- a car repair, an emergency trip home, a medical crisis.

To find higher interest rates, look at online savings accounts, such as smartypig.com or ingdirect.com, which can offer better rates than regular banks or credit unions.

DITCH THE DEBT: The average college student graduates with roughly $4,100 in credit card debt. If that's you, you might want to whack down the balance. Let's say you've got two credit cards: One with $2,000 owed at 23 percent interest; the other with $3,500 at 9 percent. Regardless of the highest balance, "Always go for the card with the highest interest rate first," said Adam Levin, co-founder of consumer website Credit.com.

PAY THE BILLS: Don't forget to settle up, whether it's the landlord or your cable bill. "When you leave the frat house, don't leave behind utility bills that haven't been paid, or you'll end up with a collection (notice). It's as bad as a foreclosure on your credit history," said Levin.

If your credit report is littered with collection notices, it could cost you big-time when trying to rent an apartment, buy a car or apply for credit card or a loan. (To check your report for free, go to annualcreditreport.com.)

CONSIDER A CREDIT CARD: If you're looking to start clean on a credit history, graduation may be time to open a credit card, as long as you can faithfully pay off the balance each month.

If you don't have a steady job or enough credit history to qualify for a credit card, consider getting a parent to co-sign or go on their card as an "authorized user."

Another option: a secured card where you put up a deposit -- such as $500 or $1,000 -- that lets you spend up to that limit.

INVEST A LITTLE: If you've got extra cash, you might set up an online investment account, such as eTrade, Ameritrade or Scottrade. "You can definitely blow money on stocks," warned Ewing, but the ability to see your dollars/cents going up and going down is a more engaging way to appreciate the value of savings." Mutual funds, tied to a major index, are a good option, said Ewing, who recommends getting advice from parents or a financial adviser.

RETIREMENT (REALLY): When you don't even have a "real" job yet, saving for a retirement decades away probably sounds like something for another planet. But opening an IRA or Roth IRA account today could be a wise investment. "Good habits start early. For young kids it matters not a lick if your 401(k) or IRA goes up or down now," said Ewing, "because you're not touching it for years until retirement."

GET SMART: Given the economy's black eye, getting educated on money matters could serve you longer than those Sociology 101 lecture notes.

"It's shocking how financially illiterate we are in this country," said Levin, noting that most universities and few high schools offer classes in financial literacy basics.

Pick up a personal finance book aimed at 20-somethings, such as "I Will Teach You to Be Rich" by young Stanford University grad Ramit Sethi, or dive into websites such as practicalmoneyskills.com. For real-life financial videos created by and for those under 25, go to www.youngfreehq.com/show/ .

It also means paying attention to notices you get from your bank or credit card companies. "When you receive something from an institution, read it," said Levin. "Even though credit card statements are required to be bigger, bolder and more understandable, it doesn't mean anything if you don't read it."

And aside from all the financial advice? As Bills.com CEO Ewing often reminds his staff: "Enjoy every day and the moment you're in. Plan for the future, but don't forget to live in the present."

Best wishes, class of 2010.