This year, 2018, will be a major year of transition for our son David. He turned 18, will graduate from high school and truly begins ‘adulting’.
While it’s not a typical birthday gift, we covered the cost for him, to draft a Will and Powers of Attorney. The fact is, we’re no longer his legal guardians once he turns 18, and if something tragic happened without this legal document in place, we can’t make decisions on his behalf.
A lot of things change when your child turns 18. Preparing them is a good-habit-endorsing practice we can participate in as parents.
Accounts & bank fees
David will have to close his youth account – the one with no monthly fees. With the onslaught of high-interest saving accounts online, he should be able to find one to act as a mid-range savings account, free of fees.
And he’ll need to start budgeting the money in his chequing account; although I talk less about “budgeting” and more about “creating a spending plan.” “Spending plan” has a much more empowering tone: it communicates choice in when to spend, save, and share. “Budgeting” feels restrictive, constrained. No matter what we call it, this is the time to learn how to manage his money before he sets out on his own.
Contracts
At the age of 18, you can legally sign a contract - which opens the door to buying investment products. Mom and Dad: you need to transfer those informal in-trust-for accounts over to your son or daughter.
Credit cards
Because 18-yr-olds can sign a contract, it means they can apply for a credit card. They need an income and/or collateral, and you might need to co-sign, but it is possible. We’re cooperating to get David a low-limit credit card, so he can 1) start to establish a credit rating, and 2) learn to use credit wisely. It’s an important lesson to avoid the siren sound of ‘free’ money. For the rest of his life, David will hear “Sign up now & don’t pay for a year!” This is our chance to set some ground rules.
Tax-Free Savings Accounts (TFSA)
As a resident of Canada, once you turn 18 you can set up and begin investing in a Tax-Free Savings Account (TFSA). The limit for 2018 is $5,500. A TFSA is actually a program, so along with straight-up savings, an investor can also buy mutual funds, stocks, bonds, and the like within it. In other words, the money placed in a TFSA can be liquid savings, or it can be invested for longer-term growth.
Other
Under “Other” is a whole list of things 18-yr-olds are allowed to do: like buy lottery tickets, get piercings and get a tattoo. That is not to say that I am endorsing those activities!
David will also be able to vote in the November municipal elections. I guess it’s time to prepare for those conversations too!
How did you support your teen’s financial transition into ‘adulting”? I’d love to know – send your comments through our Contact Us page.