What To Think About When Your Child Reaches Age 18

Financial Planning

Your child’s 18th birthday may be just as momentous a milestone for you as it is for them. Ostensibly grown-up, at least in the eyes of the law, your child may or may not be ready to assume the financial responsibilities that come with adulthood. This checklist contains a number of basic points you might want to implement or discuss with your child before they turn 18.

Day-to-day finances

Help your child open a checking account in their name but add your name to the account for ready access, if you need it.
Make sure your child obtains a debit card that is linked to the checking account for expenses and ATM use.
Talk to your child about the importance of establishing credit and compiling a solid credit history. Help them apply for a credit card in their name but make sure your child understands that the card is to be used sparingly and must be paid off every month.
Agree on an amount that you will deposit in your child’s checking account each month. Make sure your child understands that this amount is the maximum they are expected to spend during that period.
Take a similar approach with your child’s cellphone. Set targets by telling your child not to use more than the talk, text and data limits in your contract.

Budgeting and Saving

Help your child create a simple budget. You already know how much money you’re going to place in their checking account each month. Now help your child set realistic monthly spending targets. Setting up a free account on www.mint.com might help you formalize the process.
If your child is planning to work part-time while in college, arrange for direct deposit, if possible, into their checking account.
Help your child establish a Roth IRA if they work and earn income. At this point in their lives, children may not be able to afford to make the maximum Roth IRA contribution, but you can match their contribution up to $6,000 a year or the lesser of your child’s earned income.
If you help your child establish a Roth IRA, educate them on the basics of investing. Your Lenox Advisor can assist in facilitating the conversation if needed.

Legal Considerations

If your child has a UTMA or UGMA account, it’s time to designate them as the outright account owner.
Review your life insurance policies for which you intend your child to be a beneficiary. When a child is under the age of 18, they can’t receive life insurance proceeds directly. You must appoint a guardian and if you don’t, the court will appoint one. At the age of 18, however, children in most states are allowed to receive life insurance proceeds directly. Determine whether you wish to name your child as beneficiary or perhaps establish a trust for the benefit of the child, if you feel that they are not yet capable of managing an inheritance.
Talk to your attorney about drafting a healthcare proxy that provides you with the right to receive medical information about your child and make medical decisions on their behalf.
While you’re at it, ask your attorney to draft a Power of Attorney that enables you to intercede and make not only medical, but financial and legal decisions on your child’s behalf.

It’s an exciting time in both your lives

Turning 18 represents a major change in the life of your child…or should we say fledgling adult. Visit our Find a Financial Advisor page to connect with or find your Lenox advisor. And, of course, if you have any questions about any of the suggestions listed here, please don’t hesitate to contact us.

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