Getting your kid(s) off the parental payroll

[Nords]

Now that our daughter has turned 18 we're in the process of separating our finances. Let me know what I'm missing:

For starters, when she was nine years old we established a NFCU checking account in her name. Since I was her custodian at the time, her account is actually a subset of my accounts. We'll be trying to split them out from mine to stand on her own. Ideally we'd do this in some manner that would keep her same account numbers and maybe even start her own credit history. I'd hate for her to have to go through ordering new checks, getting a new ATM card, and so forth. Has anyone done this before with NFCU?

Next up is her own credit card. She's had a Citi card in her name (under my signature) for several years, but it's actually my account against my credit rating. I don't know if Citi would separate her from me and split her out on her own. (She has a flawless payment record.) It's possible that USAA would let her NROTC stipend (currently $250/month) count as sufficient income for a credit card, or she could get one through NFCU secured by her CD deposits. I don't think she has any particular loyalty to Citi, so if they don't set her up on her own then I'd probably cancel that card. I already have three of my own credit cards, one of them for much longer than the Citi card, so I don't think that'd adversely impact my credit rating. If anything it'd probably improve it.

Another advantage of USAA is their electronic deposits. They have an iPhone app that takes a photo of the check and credits it to their account... pretty convenient when there are no NFCU ATMs in Houston and darn few snail-mail boxes around the campus. NFCU is way behind on this one.

The easiest part of this project will be transferring her Roth IRA from T. Rowe Price (with expenses of nearly 0.8%) to Fidelity (with much lower expenses). That may offer her an opportunity for a Fidelity Amex but she'll have to figure out her own good deals.

I still have a personal representative with Fidelity from my days of trading like a hyperactive bunny rabbit, so ideally we'll have some sort of consolidated family account or break on expenses. She's made three years of Roth IRA contributions from her part-time job but she won't be adding any employment income to that until she's an ensign.

If things go well over this Christmas break, by the time she goes back to school the only thing she'll still be on is our car insurance policy and our Tricare. When she graduates from college then she can take care of those details on her own.

Any other issues I should watch out for when separating our finances from our kid? Anything you wish you'd done differently? Sea stories welcome!

 

[LOL!]

I think you let your daughter figure it out. Our daughter was miffed that her joint account with Mom allowed us to see her debit card transactions, so as soon as she was 18, she opened her own account unbeknownst to us. She also got her own cell phone plan unbeknownst to us. She also has a Roth at Fidelity. There are no fees for that.

It's all OK with me.

Since your daughter has a job, she doesn't need any more money from you. So if she asks, you just say, "No" which has probably worked for many years before she turned 18 anyways.

 

[lowflyer]

Sure seems to depend on the kid, but we stayed "connected" to our kids' accounts till their early 20s, but that worked well for all of us since one was busy with college and needed some periodic "assistance" and the other was in the military and overseas much of the time. Like LOL, the kids don't like me being able to see transactions and I learned early to be cautious about my commentary on purchases!

I like the idea of spinning them off as soon as reasonable for bank, cell phone, credit card, etc.

 

[Animorph]

I set up new accounts when my kids hit 18. They didn't have any before then.

Citi was pretty easy when DS turned 18 this year. Just fill in some income and you're good to go for a basic no fee credit card. The stipend would work fine for that. I included DS's living allowance, but not dorm costs. They didn't ask where the money came from. No credit history of course. You may have it easier if your daughter has a credit history. You can check that online with Citi. We didn't try at Fidelity.

Both DS's Fidelity accounts are grouped as a household with us, though I think it hardly matters any more. Anyone gets $7.95 trades. Unless you're doing something more exotic it's probably not worth it to fill out the paperwork. Though last time I just had the rep do it for me when he cold called me. At least he was good for something!

A Fidelity account with a mySmart Cash checking account attached to it works nicely for accessing cash, though deposits are by mail. We set up local and school area brick and morter bank accounts for easier access as well. Handy if you ever need a bank check for something, but maybe overkill.

I can't think of anything else we did. Be sure to let the insurance company know if she is going to a school out of state without a car. That was a big savings, like close to 50% off for us.

 

[LOL!]

FYI: Fidelity has free trades on a handful of useful ETFs, so even someone with a sub-$500 Roth will not pay any fees there.

 

[Sue J]

When our sons turned 18 I closed their savings accounts where I was the custodian and they opened new checking and savings accounts in their own names only. Neither of them has needed or wanted their own credit card, they just use a debit card or cash.

The older son is a big earner and saver so he paid off his car loan after about 15 months and opened a Roth IRA at Vanguard and he has an account at TDAmeritrade for some stocks. He also has a couple of accounts at ING which he opened just for the bonus deals.

The younger son paid cash for his car and with no credit card may have no FICO score. But he had a small student loan that was paid off early so he may have some credit history because of that.

When they were in college I added them as authorized signers on one of my accounts so that they could buy things that we had agreed I would be paying for.

When they both lived at home after college they paid us a percentage of their pay to live with us. Instead of writing a check and me having to go to the bank, what we did was the 2 sons and I set up a free joint checking account and we only use it to transfer money back and forth to each other. It's been a very handy way to do transactions between us. They both use it often for transactions between each other, like if they go in together on a pizza or concert tickets or something, one pays and then they transfer between them.

Since they are both out of college now our finances are completely separate. I like to keep current on credit card reward programs so if I see a bonus reward available I let them know and they use my card online or I'll go to the store with them for a specific purchase. We just did this when out older son moved out and bought some big purchases for his new apartment. PenFed has a bonus for Electronics Stores so he got a nice 3% cash back.

When he made the purchase he transferred the amount to me and when the PenFed reward got posted I transferred his portion of the rebate to him. We all use the same bank so this works instantly.

Outside of the joint account that we use for transfers it's all separate. Once they were 18 I wanted them to have the independence and privacy and responsibility of their own accounts.

 

[nwsteve]

Nords
We cosigned for DD credit card when she started college and I included on the application that all gurarantees expired on her 21st birthday. Lot of luck with that effort.
When it came time to get it off my credit report, we had to close the account and DD had to open a new account. A conversation with Citi folks will verify if they apply the same rules.
Good luck
Nwsteve

 

[Nords]

She'll figure it all out, and I'll try to show her where the minefields are, but I'm still trying to figure it out myself. It'll be interesting to see how the new credit-card rules treat her NROTC stipend (which is not considered taxable income).

I think her best deals will come from NFCU and USAA and PenFed and Fidelity. The challenge is figuring out how they'll excise her from my accounts without setting her adrift. I haven't contacted any of those institutions yet to figure out how they do it, and I doubt I'll get any cogent input from her until final exams are over.

She also has to decide whether she needs a personal-property policy for her NROTC uniforms. I'm not sure how much they've invested in her yet.

Be sure to let the insurance company know if she is going to a school out of state without a car. That was a big savings, like close to 50% off for us.

When she got her driver's license we only had two cars. For some reason, and because we only have the two cars, USAA volunteered to treat her as an "occasional driver" from the minute she passed the test. We haven't paid a penny extra for insurance the last two years...

FYI: Fidelity has free trades on a handful of useful ETFs, so even someone with a sub-$500 Roth will not pay any fees there.

Good point, thanks, I'd forgotten about those. We'll have to see if she wants to stick with a cheap index mutual fund or an ETF. She won't have the TSP available to her until she's commissioned.

 

[Fantasm]

When our sons turned 18 I closed their savings accounts where I was the custodian and they opened new checking and savings accounts in their own names only. Neither of them has needed or wanted their own credit card, they just use a debit card or cash.

The older son is a big earner and saver so he paid off his car loan after about 15 months and opened a Roth IRA at Vanguard and he has an account at TDAmeritrade for some stocks. He also has a couple of accounts at ING which he opened just for the bonus deals.

The younger son paid cash for his car and with no credit card may have no FICO score. But he had a small student loan that was paid off early so he may have some credit history because of that.

When they were in college I added them as authorized signers on one of my accounts so that they could buy things that we had agreed I would be paying for.

When they both lived at home after college they paid us a percentage of their pay to live with us. Instead of writing a check and me having to go to the bank, what we did was the 2 sons and I set up a free joint checking account and we only use it to transfer money back and forth to each other. It's been a very handy way to do transactions between us. They both use it often for transactions between each other, like if they go in together on a pizza or concert tickets or something, one pays and then they transfer between them.

Since they are both out of college now our finances are completely separate. I like to keep current on credit card reward programs so if I see a bonus reward available I let them know and they use my card online or I'll go to the store with them for a specific purchase. We just did this when out older son moved out and bought some big purchases for his new apartment. PenFed has a bonus for Electronics Stores so he got a nice 3% cash back.

When he made the purchase he transferred the amount to me and when the PenFed reward got posted I transferred his portion of the rebate to him. We all use the same bank so this works instantly.

Outside of the joint account that we use for transfers it's all separate. Once they were 18 I wanted them to have the independence and privacy and responsibility of their own accounts.

You may want to advise them / they may want to start building credit.
Even if they don't pay interest on their credit cards by paying off the balance each month, their credit history and score will grow.

They may come to a point where they will severely regret not having any or enough credit history.
Unless they are making money hand over fist to the tune of millions a year and won't ever need to borrow money, they should get started ASAP.

It takes a long time to build up good history and "long term" credit accounts.
They should also diversify the type of credit they get.
Credit Cards, Auto, Real Estate, etc. Its all factored differently depending on what loan they are applying for.

At the least start with a credit card that they pay off each month before any interest charges.

 

[donheff]

Have you verified that her existing checking and CC don't establish a good credit rating for her? We set up a checking account and CC for DW when she was in high school. Both were associated with us in some manner. I recently bought her a Toyota for a college graduation present and wanted the zero financing Toyota was offering. I figured I would have to cosign to get it but her credit rating was good enough that she got the loan in her name. Of course, I still get to pay it .

 

[SomedaySoon]

When my son started college just over 5 years ago I counseled him to open both his own checking account and credit card. - Also making sure he knew that any use of that CC was his own responsibility. I also had a sit down and explained how important it was to pay it off each and every month. He is now graduated and has had a good job for over a year. We had dinner together last weekend at a nice restaurant in NYC and he mentioned that getting his own credit history started early was the best advice he ever recieved. With all the new rules, his friends are having problems trying to even get their first CC cards, because of a lack of any history. I handed him the check....

 

[haha]

I handed him the check....

Bummer, Dad.

ha

 

[BigMoneyJim]

With all the new rules, his friends are having problems trying to even get their first CC cards, because of a lack of any history.

I was going to say that CC companies alwayks seemed eager to sign up college students. They always had booths at every possible college event. But it's been a while since I've been around a college campus; I didn't think about the new rules affecting college student credit.

 

[Nords]

Have you verified that her existing checking and CC don't establish a good credit rating for her?

That's a good question. A couple years ago nothing popped up under her SSN, but now that she's 18 I wonder if the ratings agencies have started a file on her. When she comes home I'll show her how to request a credit report.

Citi assured us a couple years ago that her good payment habits were only contributing to my credit score. But again, now that she's 18... she'll have to talk it over with them. Maybe it'd be as simple as taking my name off the account. Nah, too simple.

I was going to say that CC companies alwayks seemed eager to sign up college students. They always had booths at every possible college event. But it's been a while since I've been around a college campus; I didn't think about the new rules affecting college student credit.

I think it's cut back on the worst of the "free t-shirt with each card" abuses, but she's contemplating moving all her banking to Chase just because they have ATMs all over the Rice campus. I'm sure they have some sort of Sammy-the-Fighting-Owl logo card for their valued Rice students.

 

[Surfdaddy]

I would make sure no automobiles are co-owned with parents. Any big accident is a liability risk to you. Once a kid is 18, that's a cord to cut.

 

[LOL!]

FWIW, my daughter has not needed a local bank account at college nor a nearby ATM connected with her bank. Her bank is more than a thousand miles away and she says she does just fine. She just does not need any cash since all vendors take a debit card and she can get cash back at many stores. She also heard horror stories about the bank sanctioned to have ATMs on her campus, so does not want to jump into that mess.

 

[Nords]

FWIW, my daughter has not needed a local bank account at college nor a nearby ATM connected with her bank. Her bank is more than a thousand miles away and she says she does just fine. She just does not need any cash since all vendors take a debit card and she can get cash back at many stores. She also heard horror stories about the bank sanctioned to have ATMs on her campus, so does not want to jump into that mess.

I agree, it's just for convenience and a temporary solution to a problem that'll hopefully be solved in May 2014.

The biggest "problem" with her Houston banking is the old-school paper checks that she gets from her older-school grandparents. She actually has to figure out how to fill out a deposit slip (not just an ATM envelope), find a snail-mail envelope, and then search for a stamp.

Luckily she can look up the mailing address on her iPhone, but she has to laboriously transcribe it by hand to the front of the envelope.

Yeah, I don't have a lot of sympathy for this struggle myself. Why, when I was a plebe...

 

[walkinwood]

I enjoyed reading this thread even though I have no kids.

Kudos on maturity & thoughtfulness with which you have dealt with this rite of passage.

 

[MichaelB]

Two (of three) of our kids got USAA cards when they were still in school. Requirements may be more demanding but it’s still worth the effort to find out.

Free annual credit report check. A learning experience for them, and when they ask me about details on their report, I get a peek.

Same with taxes. They do them but still review with me.

I am very glad we helped them open and fund (with unused college money) their Roth IRAs. This gives us a natural way to discuss investing, gets them focused on funding retirement early when it has the greatest impact. It also has given us a way to make cash gifts to the kids and still minimize the moral hazard.

The fact that we began these discussions during college shows in their behaviour and attitudes later in life.

My biggest regret was not shifting unused college funds into the Roth sooner.

 

[LOL!]

The biggest "problem" with her Houston banking is the old-school paper checks that she gets from her older-school grandparents. She actually has to figure out how to fill out a deposit slip (not just an ATM envelope), find a snail-mail envelope, and then search for a stamp.

Our bank (WellsFargo, I know it exists in Hawaii and Houston) has postage-paid envelopes to use to mail in deposits. And free accounts for young folks and us older folks as well.

 

[Nords]

Kudos on maturity & thoughtfulness with which you have dealt with this rite of passage.

Thanks, but frankly my attitude has been more along the lines of "Woo-hoo!!"

Same with taxes. They do them but still review with me.

Yep, that's on our list. She won't have the W-2s until Feb but she'll have all the data and can get started now.

I am very glad we helped them open and fund (with unused college money) their Roth IRAs. This gives us a natural way to discuss investing, gets them focused on funding retirement early when it has the greatest impact. It also has given us a way to make cash gifts to the kids and still minimize the moral hazard.
The fact that we began these discussions during college shows in their behaviour and attitudes later in life.
My biggest regret was not shifting unused college funds into the Roth sooner.

We've talked about some sort of profit-sharing (her NROTC scholarship saves us nearly $17K/semester) and this seems like a great start.

When she graduates (and has her own income) then she'd have her Roth IRA and the TSP (if she stays Navy) or some other DC plan. I don't know how we'd continue the profit-sharing after graduation without it turning into a lifestyle-enhancement plan.

Or maybe that's not my problem. Maybe we'd just gift some profit-sharing each year for a few years with a cheery note: "Here's your inheritance, don't screw it up!". But there'd need to be some additional education & support along with that. Otherwise she'd blow an extra $500/month on rent for a really nice apartment.

Our bank (WellsFargo, I know it exists in Hawaii and Houston) has postage-paid envelopes to use to mail in deposits. And free accounts for young folks and us older folks as well.

I'll have to check into that. For all we know we have them with NFCU & PenFed as well, but I haven't mailed in a deposit in over a decade...

 

[HFWR]

My CU's ATMs do not require a deposit slip or envelope. The signed check is inserted, much like a deposit envelope would be, then scanned, then displayed, allowing the depositor to approve, or change their mind...

 

[av8er]

Our bank (WellsFargo, I know it exists in Hawaii and Houston) has postage-paid envelopes to use to mail in deposits. And free accounts for young folks and us older folks as well.

Same goes for USAA...you can request the postage-paid envelopes either online or by phone.

 

[nwsteve]

We've talked about some sort of profit-sharing (her NROTC scholarship saves us nearly $17K/semester) and this seems like a great start.

When she graduates (and has her own income) then she'd have her Roth IRA and the TSP (if she stays Navy) or some other DC plan. I don't know how we'd continue the profit-sharing after graduation without it turning into a lifestyle-enhancement plan.

Our approach with our DD has been to $$ match her Roth contributions each year. Last year she changed employers, so we paid the income tax instead on the conversion.
Nwsteve

 

[MichaelB]

When she graduates (and has her own income) then she'd have her Roth IRA and the TSP (if she stays Navy) or some other DC plan. I don't know how we'd continue the profit-sharing after graduation without it turning into a lifestyle-enhancement plan.

Or maybe that's not my problem. Maybe we'd just gift some profit-sharing each year for a few years with a cheery note: "Here's your inheritance, don't screw it up!". But there'd need to be some additional education & support along with that. Otherwise she'd blow an extra $500/month on rent for a really nice apartment.

We worry too about moral hazard but think so far we are safe. Our contributions are not regular, they are unannounced and they supplement instead of replace savings.

Calling it their inheritance is a good idea I think I'll borrow. Thanks.