April is Financial Literacy Month

April is Financial Literacy Month

by | Apr 13, 2023 | 401k, Advisors, Alan Hensley, Caring for Dependents, Family Talk, Investing 101, Tech Focus, Wealth Transfer

 

Financial education is in the DNA of Merriman Wealth Management. Paul Merriman recognized the importance of financial literacy when he founded the firm back in 1983. Now, 40 years later, it’s more important than ever to have access to trustworthy resources when it comes to financial planning. Since April is Financial Literacy Month, I thought I’d share some personal and professional stories highlighting how Merriman empowers our clients to live fully by providing peace of mind in their financial lives. 

 

For myself, the path toward financial literacy started at a young age. I remember overhearing my parents discussing a 401(k). At the time, it was obvious this “complicated” investment account was a source of frustration, and getting answers proved to be overly complex. I knew then that I had to educate myself if I wanted to avoid those same frustrations later in life. I bought books on the stock market, studied modern portfolio theory as a teenager, and eventually earned a degree in economics. All these events led me on a path to becoming a financial planner, and I discovered that not only did I genuinely enjoy learning about these topics, but more importantly, I sincerely loved teaching others about how to take control of their financial future.  

 

Fast forward to today, and I now have a family of my own. My wife and I have two beautiful daughters, and I constantly find ways to impart financial wisdom every chance I get. One such example I’m very proud of happened when my younger daughter, Emma, was born in 2019. At the time, my older daughter, Natalia, was interested in learning what I do for a living. I knew Natalia was a visual learner, so I did what any great teacher does: I broke open a new box of crayons and drafted a story with Natalia that teaches the basics of long-term investing! Natalia was so excited about our book that she asked if she could read it to her younger sister. This turned out to be a spark of inspiration because, after some careful searching, I realized there weren’t a lot of financial literacy books for young children. I then asked Natalia if we should publish the book so Emma could read our work over and over again. After a few more drafts and updates to our crayon illustrations, we published our first children’s book, Eddie and Hoppers Explain Investing in the Stock Market! This was the first time I could wear both my financial planner hat and my dad hat, and I couldn’t have been prouder.  

 

Professionally speaking, I love what I do because I get to share my knowledge with my clients every day. The old saying, “You don’t know what you don’t know,” is why people reach out to a financial planner in the first place. The cash-flow blind spots for a soon-to-be retiree can be costly and might delay retirement for years. Or the knowledge gap in how to be tax-efficient might trip up a mid-career professional, which could cause them to pay more taxes than necessary. Quite often, these financial landmines are completely avoidable, and you just need a trusted financial professional to help map out the course. 

 

Financial literacy is important for every stage of life. Whether you’re a mid-career professional trying to figure out what to do with an old 401(k) or are already retired and perplexed by how required minimum distributions (RMDs) work, it’s crucial to understand the financial implications of your choices. Just like compound interest, the earlier you start, the better the outcome. Here at Merriman, we have resources available through our blog, webinars, and eBooks that can help people make wise financial decisions at every stage of life.

 

When I think of financial educators, at the top of my list is Paul Merriman. Paul’s retirement from wealth management did not stop his drive and passion for financial education. In the past, Paul was a familiar voice on the radio and PBS. Paul still creates valuable content through his blogs, podcasts, and books. Case in point: I personally believe Paul’s latest book, We’re Talking Millions!, should be required reading for every young adult. In addition to all the previously mentioned resources, Paul has created a curriculum at Western Washington University to teach the principles of financial literacy and investing to undergrads as an elective course, empowering the next generation to have financial wisdom. His drive and genuine love for teaching are inspiring to say the least.

 

There have been many changes in the world of wealth management over the past four decades, so I reached out to Paul to have a conversation about what has changed and what has stayed the same over the years. If you haven’t met Paul or heard him speak, it’s hard to convey in words his passion for financial literacy and education. He has a gift for teaching seemingly complex investing topics and finding a way for anyone to understand. One piece of wisdom that Paul shared with me is how crucial it is not to over-complicate retirement planning.  He told me that a friend of his recently explained how to define retirement: “In retirement, we should not be doing anything we don’t like doing. That is a good definition of retirement.” In other words, retirement isn’t simply defined by the end of work. Retirement is better defined as reaching a point in life where work becomes optional.

 

The path to financial freedom is not a straight line; more often than not, it’s a journey filled with ups and downs. Through my experience as a wealth advisor and after my conversation with Paul, it’s clear to me that wealth management is more than just making wise investment decisions. Managing wealth involves ensuring all the puzzle pieces that make up a financial plan work together. Investing wisely is one piece of that puzzle, but it’s just as essential to make sure there is a plan to be efficient with taxes, put together a well-thought-out estate plan, and not forget to protect one’s wealth with the proper insurance. Here at Merriman, that’s precisely what we set out to do with all our clients. It starts with financial literacy, and through collaboration and education, our goal is to help the people we work with achieve their financial goals. 

 

If you would like to learn more, click here to set up a time to meet with one of our wealth advisors.

 

 

 

Disclosure: All opinions expressed in this article are for general informational purposes and constitute the judgment of the author(s) as of the date of the report. These opinions are subject to change without notice and are not intended to provide specific advice or recommendations for any individual or on any specific security. The material has been gathered from sources believed to be reliable, however Merriman cannot guarantee the accuracy or completeness of such information, and certain information presented here may have been condensed or summarized from its original source.  Merriman does not provide tax, legal or accounting advice, and nothing contained in these materials should be taken as such.

Can You Afford to Spend More and Give More? You Might Be Surprised by the Answer!

Can You Afford to Spend More and Give More? You Might Be Surprised by the Answer!

by | Mar 21, 2023 | Advisors, Ask Merriman, Charitable Giving, Family Talk, Geoff Curran, Goal Planning, Retirement Savings, Tech Focus, Wealth Enhancement

 

When I started my career in financial planning over 12 years ago, I discovered a deep passion for helping others navigate important life decisions such as retirement. What I didn’t realize at the time was just how difficult it can be for clients to feel comfortable spending money and giving away their wealth to family or charities they feel good about (and the regret that can come later in life by these decisions). I’ve come to term this as “financial immortality,” which is quite common among clients and was the inspiration for writing a new eBook, Merriman’s Guide to Living Fully in Retirement: How to Feel Comfortable Spending and Giving More.

 

No matter where you are on your financial journey, this new book covers topics and strategies suggested by our advisors to help you Live Fully in retirement. Whether you are currently retired, soon to be retired, or just looking ahead to the future, you can learn about options and make smart decisions that may enable you to spend more and give more. Perhaps you can make that vacation home purchase you have always dreamed of. Maybe starting a home-based business to dabble in during retirement is within reach. Or perhaps you’d like to spread your wealth across the family. Maybe there is a cause you’d like to support in a meaningful way. The giving part can be the act of gifting resources to loved ones or to charitable organizations. The point is, with the right plan of action, you can likely do more with your money!

 

A client of mine passed away in her late 90s with enough resources to survive two to three additional lifetimes relative to her spending needs. While her heirs were grateful for their inheritance, they kept sharing versions of the same story: “Aunt Susan always lived so frugally and was never comfortable with spending money. I wish she had traveled more.” From my conversations with her, I know she wished she had too.

 

Another client of mine reached financial independence in his mid-40s with three children. The problem was that each year he kept moving his own personal goalpost, pushing him to continue to work in a high-pressure role that he didn’t enjoy anymore. It took several planning sessions to build his comfort around the plan, and he was able to step away to spend more time with his family and work on something that he was actually passionate about.

 

If you recognize traits like these in yourself or someone you care about and want to explore ways to positively change attitudes about saving, spending, and giving, we can help! We are happy to share our new eBook, Merriman’s Guide to Living Fully in Retirement: How to Feel Comfortable Spending and Giving More.

 

Learn more about:

  • defining financial immortality and the importance of having a financial plan to help determine if you can afford to spend more and give more
  • spending and giving as it relates to different withdrawal rates and methods and from which account to withdraw
  • actionable strategies to help you save on taxes, donate to charity, and how best to transfer wealth to your family
  • common roadblocks or distractions that clients encounter

 

This book offers great perspective as a collaborative effort from our team of Merriman advisors. To help explain these strategies, each section is filled with real-life examples from over 200 years of our collective experience, including stories from the following advisors: Jeff Barnett, Tyler Bartlett, Aimee Butler, Paige Lee, and Paresh Kamdar. CLICK HERE to get your copy!

 

Do you need help figuring out if you can afford to spend more and give more? Schedule a time with a Merriman advisor to build your own personalized plan and assessment because we truly enjoy helping others LIVE FULLY in retirement.

 

 

 

Disclosure: All opinions expressed in this article are for general informational purposes and constitute the judgment of the author(s) as of the date of the report. These opinions are subject to change without notice and are not intended to provide specific advice or recommendations for any individual or on any specific security. The material has been gathered from sources believed to be reliable, however Merriman cannot guarantee the accuracy or completeness of such information, and certain information presented here may have been condensed or summarized from its original source.  Merriman does not provide tax, legal or accounting advice, and nothing contained in these materials should be taken as such.

Pet Insurance Guide — Worth the Cost & What Coverage to Choose?

Pet Insurance Guide — Worth the Cost & What Coverage to Choose?

by | Feb 28, 2023 | Family Talk, Healthcare, Wealth Protection

 

For many people, pets represent an unlimited source of comfort, companionship, and joy that they simply couldn’t imagine life without. Almost 70 million US households are proud dog owners, and over 45 million families share their living space with a feline friend. In fact, overall pet ownership across the states accounts for around 70% of the entire US population.

 

Protecting our beloved pets, however, isn’t always simple. Unexpected illnesses, broken bones, and unforeseen medical conditions can unfortunately arise out of nowhere; and given that veterinary care prices have risen by 10% in the last year alone, many pet owners may struggle to provide the care that their furry friends need. 

 

Taking this into account, does it make sense to get pet insurance? And if so, how do you determine which one to get? Below we’ll discuss the pros and cons of the most common forms of pet insurance in the US, including the coverage you can expect and ultimately whether insurance is worth it for the average family.  

 

Uninsured treatment costs

Before we look at the expected costs of pet insurance itself, let’s go over the price of some common veterinary procedures performed out-of-pocket with no coverage at all. Most procedures will increase in price relating to the size of your pet, meaning canine procedures often cost more than those performed on a feline, and any services that require a specialist will come with their own premium.

 

Procedure

Cost for Dogs

Cost for Cats

Broken bone

$2700

$2000

Cancer

$4000

$3800

Ingested objects

$3500

$3400

Heart murmur

$1200

$1400

Diabetes

$2600

$2000

Arthritis

$700

$500

Bladder infection

$400

$1100

 

Animal-specific conditions such as feline kidney disease and hereditary conditions like hip dysplasia in larger dogs should also be considered when weighing up your pet care options. Treatments for these issues can drastically increase your expenses over the course of your pet’s life, so it’s worth gaining a clear understanding of how likely these conditions are to appear somewhere down the line.

 

Treatments covered by pet insurance

Now that we know a little about the costs of common veterinary treatments, let’s take a look at the procedures you can expect your pet insurance to cover. 

 

Pet insurance plans often come in two forms: accident-only coverage and accident and illness coverage. As expected, accident-only plans just cover expenses related to an accident (broken bones, ingested objects, etc.), whilst accident and illness plans also provide added protection against the costs of ongoing treatments for issues like cancer, ear infections, and other long-term illnesses. 

 

Accident and illness plans are, of course, generally more expensive, but for pets with a higher predisposition toward long-term illness, they can end up saving a lot of money in the long run.

 

You can expect the average accident and illness policy to cover:

  • Dental illnesses
  • Chronic conditions
  • Toxic ingestion
  • Surgery
  • Hospitalization
  • Broken bones
  • Breed-specific conditions
  • Prescription medications
  • Emergency care

 

Some accident and illness pet insurance policies also offer routine care coverage as part of your plan. Opting for this additional coverage will take care of recurring wellness procedures like microchipping, routine check-ups, and vaccinations throughout the duration of your pet’s life.  

 

Treatments not covered by pet insurance

There are some common exclusions to pet insurance policies that are worth looking out for. 

 

These often include procedures not accepted by your state’s medical board (experimental treatments) and any treatments for pre-existing conditions that your pet had before the start of your policy. However, this does vary across providers, with some accepting coverage for curable conditions or for conditions that your pet seemed to be free from for an extended period before the start of your policy.

 

Other common pet insurance exclusions include:

  • Food
  • Nutritional supplements
  • Grooming
  • Licenses and certifications
  • Waste disposal services

 

Pet insurance deductibles

As part of your pet insurance policy, you’ll need to decide on a deductible amount. This describes the amount that you’ll pay for any procedures before your pet insurance will begin to pay out. This value can range between $50 to upwards of $1000 and will depend upon your level of coverage.

 

Pet insurance deductibles generally come in two varieties: 

 

Annual – You pay the deductible each policy term. Once this value is met, you pay nothing further until the next year.

 

Per-condition – You pay your deductible amount for each individual condition or incident as and when they occur. 

 

You’ll also need to choose a reimbursement level. This is the amount your insurer is expected to pay after your deductible is met. Reimbursement levels are generally between 70–90%, though there are a few select providers that will reimburse policyholders by a full 100%.  

 

Average pet insurance costs

Now that we have a clear understanding of the finer details, let’s see how much pet insurance costs for the average consumer.

 

Pet insurance prices for dogs come in at around $20–$44 a month for dogs and $12–$46 a month for cats. That’s about $35 a month for dogs and $28 a month for cats on average to make up $5,000 in coverage for the year.

 

The price you pay will vary to some extent depending on a few important factors. Your pet’s breed, for example, needs to be considered as some breeds are more susceptible to long-term conditions. Age, gender, and location are a few other factors that will affect the overall cost of your insurance policy. 

 

Is pet insurance worth it?

Whilst pet insurance providers (like any business) are certainly looking to turn a profit, that doesn’t mean their services won’t be worthwhile to you and your pet. The average pet owner visits their vet 2.5 times a year, and with 42% of pet owners claiming that they’re unable to cover an unexpected vet bill, a decent pet insurance policy could be a lifesaver in more ways than one. 

 

If your pet carries an increased risk of developing a long-term health condition, pet insurance can become even more of a necessity, but in the end your choice will depend on the unique circumstances that you and your pet find yourselves in.

 

Weighing up all the facts and considering the rising costs of veterinary visits, we believe it’s at least worth looking into a pet insurance policy for most pet owners out there.

 

 

Written Exclusively for Merriman.com by Madison Smith

 

 

Disclosure: All opinions expressed in this article are for general informational purposes and constitute the judgment of the author(s) as of the date of the report. These opinions are subject to change without notice and are not intended to provide specific advice or recommendations for any individual or on any specific security. The material has been gathered from sources believed to be reliable, however Merriman cannot guarantee the accuracy or completeness of such information, and certain information presented here may have been condensed or summarized from its original source.  Merriman does not provide tax, legal or accounting advice, and nothing contained in these materials should be taken as such.

Making Your Dream of Long-term Travel a Reality

Making Your Dream of Long-term Travel a Reality

by | Nov 15, 2022 | Danielle Strumbeta, Family Talk, Goal Planning, Living Fully, Wealth Enhancement

 

When I was a kid, my parents took us on a five-week trip to Europe and it completely changed my view of the world and traveling. Up until then, I had thought that people didn’t travel before retirement or didn’t travel with kids because they couldn’t walk away from their everyday activities and responsibilities. That experience helped me see that it is possible to get out there and go on your dream vacation before age 65 with some intentional planning.

 

Now, I love having the chance to help others plan and encourage them to travel and take their dream vacations. It’s so rewarding to watch others live out their dreams of bike touring the Pacific Coast from Canada to Mexico, traveling the country in their Tofino van, and backpacking through Europe after missing the chance to do so in college.

 

With fall in full swing, many families are finding their kids back at school, and some families are experiencing an empty nest for the first time in 18 years or more. If that’s the moment you’ve been waiting for to finally take that trip you’ve been dreaming about, there might still be some items you’re unsure of or haven’t yet thought about.

 

Let’s say your job offers an unpaid sabbatical, but you’re not sure if taking a few months off is going to push back your retirement timeline substantially. You know you need to make your travel plans and determine your trip route, but you’re not sure what else you need to consider.

 

As financial advisors, we help provide clarity around these unknowns. We can certainly answer your questions about how your trip might impact your retirement timeline so you’re comfortable making the decision to take time away now that you finally can! In helping answer what else you should be keeping in mind, we’ve compiled a list of some important planning items for long-term trips:

 

Financials. Consider setting all your bills to autopay if you haven’t already done so. You can also set up automatic transfers for any bank or retirement accounts that you add funds to on a regular basis. Be sure to notify your financial advisor that you’ll be gone, especially if you might be unreachable for some period of time. It’s also important to notify your bank if you’re traveling so that they don’t flag your purchases as fraudulent and deny your purchases in other countries or states.

 

Documents. Organize your important documents and know where they are in case you need to direct someone to access them. Consider making copies of your passports, medical cards, and other documents you may need to access while traveling in case you misplace any actual documents. If you don’t already have Wills, Powers of Attorney, or Health Care Directives in place, we’d highly recommend creating those estate planning documents in case something happens while you’re traveling.

 

Home. Consider having someone check on your home while you’re away. You can leave them instructions for caring for your home such as watering the plants, checking that appliances are working properly, and starting up your sedentary cars every so often. Consider setting up automatic timers for lights in your home and an alarm system for security purposes if someone won’t be at your home regularly while you’re away. You can have your mail forwarded or held by the post office while you’re away as well if that’s needed. Also consider turning on auto-replies for email and tailoring your voicemail to let others know if your usual response timing may change.

 

Pets. If you have pets and aren’t planning on taking them with you, you’ll need to find someone to care for them while you’re away. Whether that’s family, a pet sitter through a platform like Rover, or a boarding company, it’s great to leave them with detailed instructions about your pet’s food, routine, and behavior.

 

Health Care. Not all medical insurance plans offer coverage outside of your home state or country. If your coverage doesn’t extend to where you’re traveling, consider putting travel medical insurance in place in case something happens. If you have any regular prescription medications, you’ll also need to work with your pharmacist to be sure you have a plan for refilling your prescriptions.

 

Travel Insurance. Travel insurance can help provide emergency medical coverage as well as coverage for cancelations, delays, and/or accidents while you’re traveling. Consider working with an agent to determine what the right coverage is for your travel plans.

 

Contingency Plan. In case something goes awry, it’s important to have a contingency plan in place. Be sure you have an emergency contact back home and have equipped them properly for anything that could come up while you’re away. For example, be sure they know who’s watching your pets or caring for your home. Consider creating a “just-in-case” bag with additional items you might need sent to you should plans change.

 

 

Conversations about planning for dream vacations is one of the best parts of my job. I’m grateful to be able to work with people to help uncover their dreams and figure out a plan to make them happen now—not only in retirement. If you’ve got ideas about what’s important for you and your future, let’s connect! I’d love to help you get there!

 

 

 

 

Disclosure: All opinions expressed in this article are for general informational purposes and constitute the judgment of the author(s) as of the date of the report. These opinions are subject to change without notice and are not intended to provide specific advice or recommendations for any individual or on any specific security. The material has been gathered from sources believed to be reliable, however Merriman cannot guarantee the accuracy or completeness of such information, and certain information presented here may have been condensed or summarized from its original source.  Merriman does not provide tax, legal or accounting advice, and nothing contained in these materials should be taken as such.

The Scary Thing About Getting Married…

The Scary Thing About Getting Married…

by | Oct 31, 2022 | Advisors, Caring for Dependents, Dan Hill, Family Talk, Goal Planning, Tech Focus, Wealth Enhancement

 

In the spirit of Halloween, I want to share something I did earlier this year that scared the candy corn out of me, something that chilled my bones and chattered my teeth, something that made my stomach flip like stepping off a cliff ledge…

…I got married.

 

Jokes aside, after the streamers come down and the wedding party goes home, you and your partner are officially married. I distinctly remember thinking to myself, “Ok, now what?” It turns out I wasn’t alone in asking this question. A number of us at Merriman got married in 2022. During one of our regular meetings, we talked about the adjustment period that occurs as couples move from dating to marriage. And while I recommend couples discuss finances prior to getting married, it doesn’t always sink in or hit home until you and your spouse are trying to plan a clearer picture for your future as a married couple.

 

Life is short and moves at a brisk pace. The average age for couples to get married in the US has jumped up from early to mid-20s to late 20s and early 30s. Many of the young couples I meet come to me in a panic because they feel they are behind on retirement savings, late in buying a house, or overdue in thinking about their children’s education expenses. Sitting across the table, they unfurl a scroll’s worth of goals they want to tackle simultaneously. Here’s what I tell them:

 

  • You are not “behind.” There is still plenty of time to achieve your financial goals. I’m also guilty of entertaining the fallacy that one night I’ll go to sleep at 35 years old and wake up at 65. Your income will increase. You will experience promotions and fits and starts in your career. Don’t fall into the trap of thinking your current financial situation will last from now until retirement.

 

  • It’s okay to divide and conquer. My partner and I would like to buy a house in the next few years. One of the biggest obstacles we face — aside from astronomical housing prices in Western Washington — is that my MBA program created substantial student loan debt. Compared to my partner, my ability to save for a house is hampered by monthly student loan payments. After we got married, we had a conversation about the nature of our finances. It’s no longer “my money” and “his money” but “our money” and how we plan to allocate where it goes. When we had the chat about how to buy a house, we decided each spouse had a job that would bring us closer to our goal. His job became focused on putting cash away for a down payment. My job became focused on paying down as much student debt as I can. These conversations are critical because they reduce the risk of emotional tensions getting in the way of clearly seeing the end goal. There is no longer the pressure of feeling as if one spouse is doing more than the other to get us closer to buying a house.

 

  • Set a target date. Setting a mutually agreed upon date for meeting your financial goals is important because it provides a light at the end of the tunnel. Say that you have a goal for a home down payment that’s three years in the future. If the goal requires a lifestyle adjustment where you eat out less or skip a vacation, you at least know it’s temporary. There’s an end date in sight. If you’re diligent, the lifestyle adjustments will stick even after you meet your goal, leaving more cash in your wallet.

 

  • Track your progress. When I worked for Disney, I was responsible for the Shanghai Disney Resort’s onboarding orientation program, an operational beast that moved thousands of employees through the onboarding process. I had a manager who constantly reminded me, “What isn’t measured isn’t managed.” Put another way, if you’re not tracking your progress, then you have no way of knowing whether you are on track to meet your goals. I love using an app called You Need a Budget that shows our progress. Furthermore, you lose any bragging rights to your successes if you don’t know what successes you have achieved. Imagine a friend asking how saving for a house is going. Excitedly, you tell them, “Great! We saved up some amount of cash and will start maybe sometime, I don’t know, looking. We’ll see.” Way to go…?

 

  • Life will get in the way. You both are a unit now. When life hits one spouse, it hits you both. Dishwashers break. People are laid off. Babies are born. When this happens, lean into it. If your progress becomes derailed, talk about solving the issue — whether it’s allocating money to the extenuating circumstance or adjusting your goal’s timeline — and recommit to the new game plan. It’s extremely easy to become demoralized or despondent, but if you go into this knowing life will get in the way, it allows you to focus your mind and energy on getting back on track.

 

At the risk of sounding like a marriage counselor, the advice provided here is to help the shift from thinking as two separate individuals to thinking as two halves of a whole unit. The reality of getting married is that, while you may not feel any different, your commitments to each other ultimately demand a higher level of communication to identify how — together — you will meet your goals. You undoubtedly will have disagreements and competing priorities, but your financial plan necessitates coming to an agreement on how and where to focus your financial resources. Start having that conversation right now.

 

The advisors at Merriman can help you identify, plan, and keep you on track for your financial goals. Feel free to reach out to us to schedule an initial consultation.

 

 

 

 

Disclosure: All opinions expressed in this article are for general informational purposes and constitute the judgment of the author(s) as of the date of the report. These opinions are subject to change without notice and are not intended to provide specific advice or recommendations for any individual or on any specific security. The material has been gathered from sources believed to be reliable, however Merriman cannot guarantee the accuracy or completeness of such information, and certain information presented here may have been condensed or summarized from its original source.  Merriman does not provide tax, legal or accounting advice, and nothing contained in these materials should be taken as such.

Financial Planning Items to Consider When Your Child Turns 18

Financial Planning Items to Consider When Your Child Turns 18

by | Jun 28, 2022 | Advisors, Caring for Dependents, Danielle Strumbeta, Family Talk, Tech Focus, Wealth Transfer

 

Turning 18 is a big milestone! At 18, we become legal adults (and we like to think that means we’re real adults), although kids who turn 18 now are often still heavily supported by their families. There are some financial planning items you should be thinking about when supporting your now adult child to set you both up for success.

Health Care Directive

When your child turns 18, you’ll no longer be able to make medical decisions for them. Given this, we highly recommend your child puts a health care directive in place (also called a living will or health care power of attorney) so you’re able to make their medical decisions should something happen and they’re unable to do so themselves. In this directive, your child can spell out certain medical wishes and name agents, such as parents, who can make their medical decisions or access their medical information if they become incapacitated. Your child can create an à la carte directive through an estate planning attorney or an online estate planning platform such as Legal Zoom. Of note, once your child begins a family of their own, they may want to update their directive so their significant other is their primary agent for making those medical decisions.

Durable Financial Power of Attorney

When your child turns 18, you’ll no longer be able to legally access their financial accounts unless you’re a co-owner. Similar to the health care directive, we highly recommend your child puts a durable financial power of attorney in place so you’re able to help pay their bills if something happens and they’re unable to do so themselves. Your child can name agents, such as parents, who can make certain financial decisions for them should they become incapacitated. As with the health care directive, your child can create an à la carte durable power of attorney document through an estate planning attorney or an online estate planning platform such as Legal Zoom. Your child may also want to update their power of attorney document once they have a significant other so that person is their primary agent.

Roth IRA Contributions

As soon as your child has earned income, they can begin contributing to an individual retirement account such as an IRA or Roth IRA. Usually, your child’s first years of earnings through part-time work or minimum wage jobs will be much less than in future years when they have a career job, which is a great time for them to contribute to a Roth IRA and benefit from compound interest. While they won’t receive a current tax benefit for their contribution (which they probably don’t need if they have very little income), they instead have the opportunity to invest and then withdraw those funds tax-free in retirement. Kids who work a part-time job may want to spend those dollars on entertainment or personal items, so they may not have extra dollars to save towards retirement; however, you can help kickstart their retirement savings by contributing to their Roth IRA if you’d like to support them in this way. Your child can contribute the lesser either of the total of their earned income or $6,000 for tax year 2022, and they don’t have to contribute the exact dollars they made. Thus, as a parent (or even a grandparent), you can gift them that amount of funds either directly to their Roth IRA or to their bank account for them to contribute the funds themselves.

Bank Accounts

If your child doesn’t already have a bank account, we recommend they open one and begin getting comfortable using it. Bank accounts and debit cards are tools they’ll need to use in today’s e-commerce environment. If your child is interested in going to school outside of their hometown, they may want to consider signing up for a bank account with a larger bank that may have branches or ATMs available in other areas. Of note, different types of bank accounts have various fees to be aware of, so it might be a good exercise for your child to read the fine print before opening an account to have an understanding of those possible fees so they can proactively avoid incurring them.

Building Credit

If your child doesn’t have an auto loan, student loan, or a credit card by the time they turn 18, we recommend beginning that conversation, as these forms of debt are tools that can help your child build their credit. Sometimes a bank or lender may not approve a credit card or loan for your child with no credit history, but they may be willing to do so with a secured or student card, you co-signing on a card with your child, or you adding them as an authorized user on one of your cards. The longer your child’s credit history, the higher their score might be, which may help them receive better interest rates or terms for auto or home loans in the future. Due to this, it can be advantageous for your child to open a credit card as early as possible and keep that card open for as long as possible. While credit cards with high interest rates and limits can be troublesome if they’re misused, you can certainly teach your child to treat their credit card like a debit card, meaning they should only spend money they already have in their bank account, which they then pay off each billing cycle or sooner to avoid late payments and interest penalties.

Tracking Credit

If they haven’t already done so, we also recommend your child creates logins for all three credit bureau websites—Equifax, Experian, and TransUnion—and regularly tracks their credit score to ensure there are no errors or fraudulent activity. Your child (and you, too!) may also want to consider freezing or locking their credit with each bureau to prevent fraud if they are not expecting a bank, lender, or landlord to check their credit at that time. If a bank, lender, or landlord is going to check their credit in the future, then your child would simply need to unfreeze or unlock their credit with each bureau beforehand.

Budgeting

Help your child learn to track their expenses and create a budget so they learn how to save for items they want and better understand what it costs for them to live or participate in activities with their friends. Even with supporting your child, you may consider having them use a credit card and bank account for all their expenses and pre-paying them or reimbursing them for expenses so that they have some accountability to a budget and learn to manage that. Mint.com by Intuit is a great tool for help with tracking spending, budgeting, and savings goals.

Aid and Loans for College

College is a major life decision for many 18-year-olds. Hopefully you’ve already been talking with your child about college well before they turn 18 and have had a chance to discuss their options for schools and how much you are willing or able to contribute toward their education costs. If you’re not able to fully support their college costs, it’s important to talk with them about their financing options. Please review our Demystifying College Financial Aid article for details they should know and consider with financing.

 

We’ve seen these financial planning items be invaluable for the families we work with and their kids, and we hope they’re helpful for you and your family as well. We’re always happy to help talk through specific situations and questions, so please don’t hesitate to reach out about yours!

 

 

Disclosure: All opinions expressed in this article are for general informational purposes and constitute the judgment of the author(s) as of the date of the report. These opinions are subject to change without notice and are not intended to provide specific advice or recommendations for any individual or on any specific security. The material has been gathered from sources believed to be reliable, however Merriman cannot guarantee the accuracy or completeness of such information, and certain information presented here may have been condensed or summarized from its original source.  Merriman does not provide tax, legal or accounting advice, and nothing contained in these materials should be taken as such.