Northwestern Mutual

When My Child Turns 18

Set your child on the path to financial security.

When My Child Turns 18

When kids approach legal age, the world is their oyster. They've got big dreams for their future, and you can help them reach their goals by setting them on the path to financial security.

If you haven't already done so, talk to your kids about responsible financial planning. And if you don't feel quite equipped to guide them, get the help of a financial professional. It's never too soon to introduce your children to financial strategies and the benefits of planning.

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Here are some topics you may want to consider as you talk with your children about their financial future:

Create a budget.

To reach any financial goal, children need to understand how much money they have coming in each month, how much is going out each month and how much could be set aside for the long term. In other words, they need a budget. Learn More.

Develop a plan for saving and investing, and begin with these two strategies:

  • Establish an emergency fund. As part of their monthly budget, encourage them to build an emergency fund because no matter how carefully they may plan their finances, there can be unexpected expenses like car repairs or a doctor's visit copay. Aim for a total of six months of living expenses.
  • Manage debt. Debt is a fact of life for most people, particularly young adults. Whether it's a student loan or car payment, most people have some type of debt payment in their monthly budget. Even if your child has more than he or she would like, the good news is that debt is both preventable and curable.

Get basic estate planning documents in place 1.

Most young adults think they're invincible. The last thing they want to consider is the possibility they could fall victim to accident or illness. So it may be up to you, the parent, to help them understand the importance of getting basic estate planning documents in place as soon as they're of legal age.

Imagine for a moment that your 19-year-old daughter is in a car accident and is taken to the hospital. En route, you call the hospital and ask for a report on her condition. They refuse to tell you. Why? Because she's of legal age, and health care privacy laws prevent them from sharing information about her condition. You may also be prevented from making health care decisions on her behalf if she is unable to do so herself. 

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Encourage her to name you—or another adult—her health care power of attorney so you can be well informed in the event of an emergency, make health-care decisions on her behalf and ensure her wishes are honored. Learn More.

Protect income.

When young adults are just starting out, their ability to earn an income is their greatest asset. They need to protect it. If they're working, and if disability income insurance is offered through their employer, encourage them to take advantage of the opportunity and the group rate that may be offered. However, most group plans cover only a portion of income. So to fully protect themselves, they may want to consider a supplemental individual policy. An individual policy is also portable. Because they will own it, the policy can move with them from job to job as long as they pay the premium. An individual policy can also be a great way to protect their ability to earn an income if they're self-employed. Learn More.

Contribute to a qualified retirement plan such as a 401(k) or 403(b).

As soon as your adult children begin working full time, talk with them about saving for retirement. By accumulating as much as they can, as soon as they can, your children can put time on their side—time to plan, time to weather the ups and downs of the market and, most important, time to let the power of compounding interest work for them. Learn More.

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