Watching your child grow into a young adult is emotional on many levels. Still, as parents, it’s important to understand that when your child turns 18, you no longer have the same legal parental authority. Because the day your child turns 18, they are now a legal adult and will take on many new responsibilities and rights. And as a parent, you lose some rights when your child reaches adulthood. Accordingly, it is essential to ensure that your child has all the necessary financial and legal protections in place so they are ready to make the best decisions in the future.
If your child’s 18th birthday is coming up, there are some crucial steps you should take as a parent. Here are a few things you can start with:
Open A Bank Account
If your child doesn’t have a savings or checking account yet, this is a good time to open one. You can also be a joint account holder if you want to help manage the account or add funds when needed.
Financial Literacy
Finance is not an easy topic to handle or grasp, and for an 18-year-old with their whole life ahead of them, it may not be easy to understand and can be pretty overwhelming. But giving your child a crash course in finance can help them in the long run. Be sure to discuss topics such as managing debt, the importance of following a monthly budget, and saving for early retirement. Since an 18-year-old is legally able to sign contracts, such as an apartment lease, ensure they are well aware of the terms and implications of the agreement.
Update The Insurance
Your child’s new status as an adult can impact your risk exposure, so it’s important to take the necessary steps to ensure that a proper insurance policy is in place. When it comes to health insurance, a child can usually remain on their parents’ plan until age 26. If you want to continue covering your child under your current plan, be sure they have in-network coverage. This is particularly important if your child moves out of state for work or studies. Moreover, there are other cost-effective options, such as an employer-sponsored health insurance plan if your child is employed, or a student health plan if your child is attending college.
Likewise, if your child is living in a college dorm, it would be wise to re-evaluate your homeowners’ insurance policy so that your child’s property is covered. Imagine a scenario where your child’s laptop gets stolen from the dorm lounge; having the right insurance can make the difference in recovering from such a setback. But if they live in an apartment, it would be a good idea to ensure they sign up for a renter’s insurance policy to cover their personal belongings and protect against similar unforeseen events.
When it comes to car insurance, see if your current policy is enough to cover your adult child’s needs. In most instances, having them included in the family’s car insurance policy is better and more cost-effective than getting an individual policy. If you wish, you can also talk to your insurance agent about having your 18-year-old’s vehicle insurance switched to their name to limit your asset exposure.
Apply For A Credit Card
Having a credit card without a parent on the account is a good way to build credit. Doing so gives your 18-year-old access to funds while also teaching them how to adopt financial responsibility. Moreover, it can come in handy in emergencies. As a parent, you can set up automatic monthly transfers from your child’s checking account to make sure payments are made when needed.
Get A Credit Report
Before turning 18, your child wouldn’t have much of a credit history. Minor children are often easy targets for identity thieves, so make sure that nothing fraudulent is connected to your child’s Social Security number.
Get A HIPAA Release
Due to the HIPAA or Health Insurance Portability and Accountability Act, health care providers cannot disclose an adult’s medical record, even if the child is still on the family’s health insurance plan. However, you can have your child sign a HIPAA medical information release form so you, as a parent, can access such information.
Sign A Power Of Attorney And Health Care Proxy
You can no longer make decisions for your child once they turn 18, unless they have signed a health care proxy. Otherwise, a Power of Attorney gives you the authority to manage your child’s finances if they are not in a position to make it independently. This also allows you to act on their behalf if they are unavailable to sign leases or other documents.
Create A Will
A birthday is not a time to think about death, but as unpleasant as it is, creating a will is very important. If your child does not have a will, any assets they own may be subject to probate. In many states, the assets of an unmarried child without descendants will pass to the child’s parents. However, if the child is involved in a trust, a will would be better, as it will ensure the assets are distributed as your child wishes.
Final Thoughts
Hitting the 18-year-old milestone is an essential stage for both your child and yourself. The day your child turns 18 is more than just a birthday; it is a financial and legal transformation that can significantly impact your child’s future, both economically and mentally. These initial steps into adulthood set the stage for a lifetime of financial habits and decision-making. The choices your child makes today will echo into their thirties and beyond, shaping their financial identity and stability. It is a pivotal moment that lays the groundwork for a future of financial independence and prosperity.
Accordingly, it is the perfect time to discuss the financial responsibilities that come with adulthood. Talk to your child and ensure that they understand that the decisions made today can have economic impacts in the future. Young adults are not always wise when it comes to saving and investing, but as a parent, you need to warn them about the dangers of accumulating debt.
Of course, your child will make some mistakes along the way, but ensure you’re available to communicate to help them navigate financial boundaries and decisions so they can set up a strong foundation for the future.
