With children leaving for college and others having graduated and beginning careers, Parkside thought it an opportune time to share some financial planning tips for young adults. Please feel free to share this with the young adults in your life.
1) Health Insurance, Health Care Proxy and HIPAA Privacy
- In the unlikely event an adult child is in an accident, the medical professionals taking care of him or her cannot disclose information to others. Medical privacy laws, known as HIPAA (Health Insurance Portability and Accountability Act) may prevent parents from obtaining information or making medical decisions in life-threatening instances.
- HIPAA rules apply even if the child is covered under his or her parent’s health insurance.
- Young adults may consider filling out a HIPAA release to grant access to their medical records and a medical power of attorney to enable someone else to make medical decisions on their behalf. Forms may be different in one’s home state and the state where attending school.
- For students studying abroad, review existing medical insurance to determine what is covered while living abroad, in addition to the details of health insurance coverage that may be offered through the study abroad program. Consider consulting an attorney to understand the laws for the study abroad country and travel locations.
2) Checking Accounts, Credit Cards, and Budgeting
- Using a regional bank, while fine at home, can at times impede those one-off banking necessities, such as obtaining a certified check to secure housing, when there is not a branch near school. Young adults may consider maintaining accounts at a national bank with branches near school.
- Take this opportunity to check beneficiary designations on IRAs and brokerage accounts.
- For those studying abroad, a credit card is more secure than a debit card as many foreign, even developed, countries may have data skimming machines tied to ATMs. Also ensure that the card does not have foreign transactions fees, which can really add up.
- Young adults living abroad may consider granting their parents financial power of attorney to act on the student’s behalf in all financial matters. If an account is overdrawn, possibly the result of fraud, a stateside parent may be able to resolve the issue more promptly.
- Using budgeting software such as Mint can provide guidance on budgeting and help monitor spending.
3) Renters Insurance and Automobile Ownership
- Often, children who are full-time students under age 24 and living in on-campus housing will be covered under their parent’s homeowners policy for liability and personal property. Please consult your homeowners policy to confirm.
- When living in rental housing off-campus, it may be better for children to obtain their own renters insurance policy, which is fairly inexpensive.
- If a young adult is driving a car still registered under a parent’s name, parents may consider transferring the car to be in the child’s name to avoid future hassles. For example, a towed car or nuisances involving the DMV can be handled by the child independently, instead of requiring a parent owner’s involvement, possibly across distant geographies and time zones.
- Note that as the owner of the car, the child will have to obtain his or her own insurance policy.
4) Young Professionals and Saving
- Young adults starting work should contribute at least the minimum (hopefully more!) to their company’s 401(k) plan to meet the employer’s match. Hopefully once feasible, young professionals will aim to max out their annual 401(k) contributions ($19,500 for individuals under age 50).
- Many appreciate having excess funds or savings automatically pulled into their investment accounts on a regular basis. Investing regularly, even $200 monthly, not only ensures the money is not spent but also allows for an investment strategy that reduces the impact of volatility by periodically purchasing into the market.
- Roth IRAs allow investments to grow tax-free and enable one to take tax-free withdrawals in retirement. Consider contributing to a Roth IRA – up to $6,000 for a single person under age 50 with modified adjusted gross income (MAGI) less than $140,000. Consider monthly contributions – it may be less intimidating and allows one to average purchases into investments over time. Consult a tax preparer for eligibility.
5) Register to Vote
- Encourage your children to have an ongoing understanding and focus on financial and tax issues on a local, state and federal level since they have an impact on these matters with their vote!
Please contact us to discuss these financial planning suggestions for your children as it pertains to their unique situations. Of course, comprehensive financial planning is only one piece of the services that Parkside Advisors provides.