Vegetables, homework and breaking bad habits. Parental advice hovers on those three subjects so often that other facets of life rarely receive a mention. A child is aware of a parent’s financial life at an extremely early age. Trips to the bank form some of the bedrock memories when it comes to a child’s understanding of finance. Family discussions concerning housing costs, insurance, taxes, bills, salary, and retirement are daily reminders of money’s importance in adult’s lives. In the past, as a child grew into an adult, much of their economic education was framed by experience and not by direct parental involvement. A parent opening a bank account for their child was one thing, a parent explaining how to save and how to invest was something different entirely.
It is no wonder that as parents age there is a hesitancy to bestow financial decision-making authority on children. Many parents have difficulty gauging a child’s financial acumen, because a majority of a young adult’s financial life occurs outside of a parent’s direct line of sight. In cases like this the financial decision transition from parent to child occurs later - when a parent’s loses mobility or the spouse who paid the bills predeceases the spouse who did not. Waiting has its drawbacks. An adult child may have too many responsibilities of their own to give the attention necessary to handle a parent’s finances adequately.
An acceptable time to allow children to take a more active role in your finances is when you are still healthy, but ready to implement an estate plan that benefits the next generations. This is the point at which personal control is less important than ensuring a strong family economic unit. From the child’s perspective, a parent that has not kept current with investments, interest rates, home values or certain technology may need help maintaining a solid financial footing. In both scenarios, there is no sudden takeover. There is inclusion and openness. Account titling along with Powers of Attorney are tools that can be used to assist with financial management.
A parent should engage with their children about finances at an early age. If enough trust exists on both sides then a young adult child can start to be included on certain estate plans and accounts. This way a transition can occur gradually. Parents and children that view their financial lives as a partnership are incentivized to look out for each other and build a lasting legacy. Children lacking financial guidance early in life and aging parents lacking proper financial management may make poor decisions which carry long lasting adverse effects. Consult with the professionals at Sloan and Feller to go over these and other issues impacting your family.