Nicholas Scheibner, CFP®, is quoted on this topic, answering a reader’s question on NJMoneyHelp.com by Karin Price Mueller, “How can I help my son be responsible with money?”, originally published on September 29, 2021.
A 60-second read by Nicholas Scheibner, CFP®: This is a common issue for parents who are looking to teach their children more financial responsibility. The options range from “least restrictive” to “most restrictive”. And the costs and complexities vary with each option.
Least Restrictive: Education and awareness. The first step could be to give your child more tools to help them learn about their own finances. Budgeting apps such as “EveryDollar” and “Mint.com” can be a good way for them to track where their money is going. If he uses a credit or debit card for most things, linking his accounts with Mint.com could help him (and you if he gives you access) see where his spending is really going each month. These apps can also help him set goals for himself, such as saving money to buy a car or build up an emergency savings.
Somewhat Restrictive: Setting up a joint or custodial account. Depending on your son’s age, you could set up a custodial or joint account with him. That way, you’d be able to see the transactions on the account, and also have the ability to deposit or withdraw funds. If your son is over the custodial age, (21 in New Jersey) however, he would have full access to the money and be able to make withdrawals whenever he’d like.
More Restrictive: Establishing a savings account, in your name only, earmarked for gifts to your son. You can set up an allowance-type system, or account, which is solely controlled by you, and gift your son funds either on a recurring basis or as needed. However, you are limited to gift-tax rules, and may wish to stay under the annual gift-tax exemption limit.
Most Restrictive: Setting up a trust. A trust is a separate entity which allows you to control the use of the funds. A trust can be useful for estate planning purposes if you feel your son is not very responsible with money, and if he were to inherit a large amount from your estate. By having your primary beneficiary of your estate be a trust, you could direct the distribution of funds per your instructions. These instructions are followed by a trustee. A trustee can be an individual or institution. You can even have co-trustees. The trustee would then distribute the funds according to your trust document or will. We would recommend consulting with an estate planning attorney for individual recommendations.
Your son may also benefit with a consultation from a Financial Advisor. You can hire a Fiduciary Advisor on an hourly or retainer basis to speak with your son about his financial goals. Several advisory firms also have Pro-Bono hours which they offer throughout the year. The Foundation for Financial Planning offers a great list of resources for people looking to learn more about their finances: https://ffpprobono.org/consumer-resources/
If you have any further questions, please reach out to your Baron Team.
Disclosure: This is a general communication being provided for informational purposes only. This material is not intended to be relied upon as a forecast, research, tax or investment advice. Please consult your tax planning professional for personal tax advice. Past performance is no guarantee of future results. Every investment strategy has the potential for profit or loss.