How To Talk To Your Children About Their College Fund
A client came in this summer and told me her son was entering college. Because her son was 18, he could access the money in his custodial account, and she wanted to know how to discuss it with him. Keep in mind each state has different age limits on custodial accounts that range from 18 to 21. There are essentially three scenarios that can play out.
A popular but unfortunate option is not telling your children about the money. This is denial. If you set a precedent of not talking about financial matters now, your children will have little hope for financial literacy in the future. A less common approach is to turn over the accounts wholesale. This is setting your children up for failure. Instead we need a reasonable plan.
I suggest making it a family affair. It is their money, but they need assistance and probably should keep the checkbooks with you for safekeeping at first (read: until graduation!). Sit down with your children and show them the monthly statements, explaining how you built up the accounts over the years so you could assist them in starting their adult lives.
College can represent a dry run for both parties: parents are learning how to pass on wealth to their children who are learning how to leverage that legacy. College tuition is usually the first step. Have your children write the checks to the college treasurer. The first day of classes will take on new meaning when they think of how much money they are spending to be there. Also, have them set up their own checking accounts. Help them develop a budget for living expenses and write one check from their custodial accounts to their checking accounts. I know, they will probably overspend and come to you for more money. This is a golden opportunity to teach them about living within one’s means. We learn from our mistakes, so let your children make some on their own. Better now than later.
The point is that both parents and children are learning something here. If you can talk to your children about their custodial accounts, you will be able to talk about passing on your legacy later in life. Transferring wealth in the future will be easier if you have imparted your financial values and are confident about your children’s money management skills. Think of it as training wheels for an inheritance later in life: teach your children to do a good job and their training wheels eventually come off. Do a bad job and your legacy may end up in a generation skipping trust!
Lee Munson, CFP®, CFA
Lee Munson is the Chief Investment Officer of Portfolio, LLC. He lives in Albuquerque with his wife Alison. They are expecting their first child this year. He can be reached at lee@portfoliollc.com or through the firm’s website at http://www.portfoliollc.com
Lee E. Munson has a significant and salient background in the financial services industry. Early in his career on Wall Street, Lee worked with both high net worth personal accounts and institutional clients. After four years he returned to his home in New Mexico, where he focused exclusively on wealth management. Lee’s conspicuous success, acumen, and client satisfaction lead inevitably to the formation of Portfolio, LLC a company that reflects his informed expertise and proven method. Mr. Munson is a graduate of the prestigious St. John’s College in Santa Fe and has the uncommon distinction of holding both the Certified Financial Planner and Chartered Financial Analyst designations. He is also Secretary of the New Mexico Estate Planning Council and a board member of the Financial Planning Association of New Mexico.
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Tags: child, children, family, literacy, money, money management, parent, parents