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FINANCIALLY SPEAKING
{ SHIFT+CONTROL }{ SHE HUSTLES TALKS }{ SHE HUSTLES TALKS }{ FINANCIALLY SPEAKING } PRACTICAL FINANCIAL AND LEGAL CONSIDERATIONS
BY MARIA CATON
BEFORE YOUR GRADUATE TRANSITIONS
With spring comes new growth, as well as the fresh crop of yard signs memorializing this year’s soon to be high school graduates. While most will be focused on continued celebrations well into the summer, now is the time to solidify your graduate’s financial and legal transition towards independence. Whether your child will be transitioning to college, the military or independent living, it is critical to help prepare their financial foundation, and ensure safeguards are in place for emergencies and the unexpected.
Before your child departs to start their new adventure, it is important to discuss spending and the parameters of what expenses will be covered, and if you will be helping to subsidize. It starts with creating a budget, understanding what expenses will be incurred throughout the year, and establishing funding sources accordingly. For many, it is easier to manage funds that are provided on a regularly scheduled basis as opposed to a lump sum for the year. If you will not be assisting with expenditures, helping them create a budget takes on even greater importance. For those transitioning to independence, understanding all sources of income is the foundation. Whether its from employment, scholarships/grants, or help from parents, understanding what resources you have to work with is a key component. Not all expenses are the same. For example, there are essential expenses that must be covered, such as housing, food, and utilities. The next level of expenses are those that are flexible and include non-essentials. These are the expenses that typically get people in trouble
because they are the “nice to have” things such as meals out, travel and entertainment. Tracking spending helps to ensure you are within your income limits. Some people find using a spreadsheet helpful, however, there are many online or mobile tools to help such as Mint or LearnVest. It is also advisable to have a joint checking account with your child, at least for the first year. That way you are both able to view spending and can readily address things if spending becomes a little out of hand. By having a joint checking account, you can replenish funds or make transfers in a timely and efficient manner. In addition, finding a local bank or national bank that does not charge for ATM fees is helpful, otherwise, fees will likely add up fast.
A credit card can be an efficient way to pay for expenses while building credit, provide for an emergency and possibly receive rewards and cash back, however, it is not for everyone. You have to know your child, and if past behavior or lack of maturity are a concern, it is better to wait and help build good habits before facing a potential problem. When it makes sense, establish the ground rules. This should include what the credit card should be used for, and who is responsible for the payments.
This age of transition is a tricky time, especially when your child reaches the age of 18. Although they may still be somewhat dependent, they are officially an adult. That means you are no longer able to make legal or medical decisions for them, let alone have access to any of this information. There are documents, however, that
can be drafted and completed with an attorney to ensure you remain informed and able to make important decisions on their behalf should the need arise.
With the recent COVID-19 pandemic, a Healthcare Power of Attorney has taken on even greater importance. With a Healthcare Power of Attorney naming you as your child’s “medical agent,” you will have the ability to view their medical records and make informed medical decisions on behalf of them. Without this document, healthcare decisions concerning your child’s diagnosis and treatment will be solely in the hands of healthcare providers. Equally important is to check with your attorney that the Healthcare Power of Attorney includes reference to the HIPAA Privacy Act (The Health Insurance Portability and Accountability Act). Otherwise, your child will need to sign a HIPAA waiver. This will allow you to obtain information from healthcare providers about your child’s health status, progress, and treatment.
Another important document to have in conjunction with the Healthcare Power of Attorney is a Living Will. This written document sets out how your child would want to be cared for in an emergency or otherwise incapacitated. Realizing that you cannot account for every possible situation, it is imperative this is done in tandem with the Healthcare Power of Attorney.
Similar to a Healthcare Power of Attorney, a Durable Power of Attorney
allows your child to name you as “agent” to take any legal action with regard to their property. This could be used for bank accounts, rental agreements, and tuition issues.
Lastly, The Family Educational Rights and Privacy Act (FERPA) is a federal law that protects the confidentiality of student records, granting sole control of those records to the student. In order to view or have access, a student is required to sign off granting permission to their parent. This may be easier said than done, however, it’s important to understand the rights of students, regardless of who is footing the bill! A child transitioning from dependence to independence is an emotional time. Although as parents we recognize at birth our time is limited, the years pass too quickly and soon enough our children leave and create their own path. By establishing these safeguards and practices, parents can feel reassured that should anything unfortunate happen, they are in the best position to help their transitioning child.
Maria Caton, CFP®, ChSNC®, AAMS®, is Senior Vice President, Manager of Financial Planning Services - Team Leader, CNB Wealth Management, Canandaigua National Bank & Trust Company. She can be reached at (585) 419-0670 x50666 or by email at MCaton@cnbank.com.
