Relative to 30 years ago, young adults are taking longer to complete school and begin careers. Many parents have children who are in college, or out of college and not yet independent as a result of the changing labor market. Surveys tracking young people through their first decade of adulthood have found that 40% of young adults are still receiving some form of financial assistance.
All of this can help the child temporarily until they can get a job, establish their own credit, and be self-supporting. However, there are steps the parents can take to get the child “launched” quicker and ease their transition.
Auto-Insurance Coverage
- Covering a child under your auto policy may save money, but as the child gets out on their own, they should absolutely get a policy in their own name. Having been under the parents’ coverage gives the child some auto history with the insurance company, but the child needs to establish their own history. Having longevity with the insurance provider can help when they file a claim and if there is a longer history, the insurance company may not readily drop them as a customer.
- Also note that if the child is under their parents’ auto policy, then they are most likely under the parents’ umbrella policy as well. So, if the child has an accident and the injured files a claim beyond the limits of the auto policy, the parents’ umbrella will kick in. While this offers the child some protection, it can compromise the parents’ coverage and could cause them to be dropped by their insurance company after the claim. Instead, if the child has their own policy, anyone making a claim against them is limited to the child’s auto policy limit, and if the damages exceed that, the child’s limited assets are the only thing at risk.
Applying for Health Care
- Covering a child under a parent’s health insurance may be the most cost-efficient way to pay for it, but if that cost is too high or the child reaches the age of 26, consider having the child apply for their own policy, either through the Affordable Care Act, which can allow them to get a government subsidy, or via Medicaid if they are in school or living on their own, but have nominal income. Once a child turns 18, then the parents no longer have certain oversight rights. It is important for an adult child to have a health care directive in case something happens and a proper legal document to provide Authority for those who can make medical decisions on their behalf. If you are a California resident, Anthem Blue Cross is recommended.
Establishing Credit
- Lastly, help the child get a credit card on their own, while they are in college. Credit card issuers sometimes make an exception for students who may not have an extensive credit history. The child then starts to use their own card and over time will build up a longer credit history and can ask for increases in the available credit.
Transitioning into adulthood can be a stressful time for young people, and these days it is getting much more difficult. Taking the steps we delineated can lay the groundwork for them to begin their new life as an independent adult.
READ MORE: How to Help Manage a Child’s Inheritance
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Mission Wealth is a Registered Investment Adviser. This commentary reflects the personal opinions, viewpoints, and analyses of the Mission Wealth employees providing such comments. It should not be regarded as a description of advisory services provided by Mission Wealth or performance returns of any Mission Wealth client. The views reflected in the commentary are subject to change at any time without notice. Nothing in this commentary constitutes investment advice, performance data, or any recommendation that any particular security, portfolio of securities, transaction, or investment strategy is suitable for any specific person. Any mention of a particular security and related performance data is not a recommendation to buy or sell that security. Mission Wealth manages its clients’ accounts using a variety of investment techniques and strategies, which are not necessarily discussed in the commentary. Investments in securities involve the risk of loss. Past performance is no guarantee of future results.
