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Raising Financial Grownups: 5 Easy Expenses Your Child Can Take Over When They Get Their First Paycheck 

Bobbi Rebell, CFP®  |  September 17, 2019

Congratulations — your child is taking their first step into adulthood! Yes, you’ve still got their back (and you always will) but there are some things they can now start paying for themselves. 

Celebrating a first paycheck with your child is an exciting milestone — and a reality check. Nothing says “welcome to being a financial grownup” quite like a first paycheck that’s been massively reduced by taxes and other expenses. 

But what follows can be even more important lesson: transitioning your newly employed young adult onto their own accounts and having them pay their own bills. Yes, it relieves some of the pressure on the parent’s finances. But rolling young adults off the family payroll in a thoughtful way can also teach them essential lessons in just how much things cost in the real world. 

Yes, you want to gently nudge your offspring into paying for everything themselves, but make sure you take a good look around before having them take the leap. Here’s a look at five expenses kids can potentially take over when they start their first full-time gig. 

1) Credit Cards 

When You Should Continue Helping Out: Some premium cards offer benefits to the entire family at little or no additional cost. For example, the American Express Platinum allows up to three authorized users on a card for an additional $175. If you are already paying that for one or two users, keeping an adult child as the third authorized user can give them access to economical perks like free airport lounge access, which can save money on food and drinks when traveling. If you are using the green American Express card, you can add children as young as age 13, though the perks are not as extensive, they still benefit from purchase protection and perks like early access to tickets to events. 

When Your Child Should Take Over: If they don’t already have their own credit card, they should get one now. Getting a no-fee credit card that they pay off each month will not only teach them to manage their cash flow, but also help establish a credit history that will allow them access to other adult privileges like being able to get a mortgage or car loan. They should also consider sign up bonuses and choosing cards that have rewards and bonuses in places they use frequently. 

The Gray Area: If they aren’t yet on their own credit card, you may have to help them out. One option is to co-sign. The problem is that leaves the parent vulnerable. You are responsible for their debt if they don’t pay it. It can also negatively impact your own credit score. Another option is a secured card. It is backed by a cash deposit, which is often equal to the credit limit. This is also better for building credit than a prepaid debit card. 

One More Thing: Keeping them on plans as authorized users doesn’t mean they have to actually use the cards at all, so you can set a low limit on their use and make sure they pay you back for anything they charge. 

2) Discretionary/Entertainment/Dining Out

When You Should Continue Helping Out: If you are at a family gathering, the truth is, if it is affordable, it is nice for the parents to pay. Especially if there are younger siblings present, singling out an older child and presenting them with their share of the bill may be a bit much.

When Your Child Should Take Over:  Any time they are spending money that is for them. This can be going out with their friends, buying their own food, and shopping in general. You may choose to buy them an outfit for the first day of work, but after that, spending on clothing should be on them. 

The Gray Area: If a child is living at home, paying for their own everyday groceries can sometimes get complicated. Do you really want to start labeling whose food is what, especially if other siblings are around?

One More Thing: Content subscriptions like Netflix and Hulu. If you are paying for a family plan, the truth is your child can log in at no additional cost even if they don’t live at home. So it generally doesn’t make sense to knock them off. 

3) Health Insurance

The best news in recent years is that this is actually a choice. Kids can stay on their parents plans until age 26. 

When You Should Continue Helping Out: If the parents’ plan is priced in a way that there is no incremental additional cost per child, the children should stay regardless. If the premium is literally not costing you any more, there is no real cost to pass on to your child. One caveat: Make sure the coverage is the same. Some plans offer lesser coverage to dependents than to the primary insured person. 

When Your Child Should Take Over:  Adult children should handle their co-pays and any other costs that are not covered. They should be responsible for filing the forms themselves, and keeping track of their own balances and deductibles so they learn how health insurance works. Bills should be addressed to them, even if they still live at home. 

The Gray Area: If the parents plan is priced per-dependent, it may or may not be more expensive than the plan offered by their employer. Make sure to compare before you make a choice. Also there may be employer options that are a better fit for the child.  For example, your child could be offered a high deductible health plan that comes with a cash contribution from the company. According to the Society for Human Resources Management, the average company contribution to an individual employee’s health savings account in 2018 was $474.  If a child is healthy and expected to only use the wellness visits, that free money may be worth considering. And as a reminder, HSAs avoid taxes both when contributions are made, and if used as intended, when contributions come out of the plan. That makes them one of the best savings vehicles out there. 

One More Thing: Timing is also important. If the job starts late in the plan cycle year, the child’s deductible on the parent’s plan may already be met, and it might make sense to delay the switch over until the next open enrollment. 

Kids will learn very quickly that there are strong financial incentives to go to doctors in-network, and to look for ways to lower costs. For example, many prescription drug companies now offer coupons for prescriptions right on their websites. You just have to look. A kid that previously might not have bothered will get very good at this very fast. 

4) Phone Plans

When You Should Continue Helping Out: Every plan differs, but in most cases, the cost of an individual plan is going to be higher than the incremental cost of keeping an adult child on a family plan. Parents may also be on a legacy plan and be grandfathered into things like unlimited data.  That makes it no contest if you do the math compared to a brand new individual plan with that carrier. 

When Your Child Should Take Over: Employed adult kids can still contribute their share of the family plan to the family coffers. They may elect to lower their data plan and other features when they realize they have to cover the additional costs. 

When To Take It Away: If you child has a job where the employer is covering all or part of their phone expense, they should take advantage of that deal and separate from the family plan. Also, if your child is working at a large corporation, they could potentially get a corporate rate, which may be even better. 

The Gray Area: Opening up a new plan can often come with incentives, and the math may change. Shop around to see where you and your child may be able to get the best deal. If it costs less to stay on the family plan, young adults should contribute at least part of their share, so that they get used to the cost and can start including it as a line item in their budgets. 

5) Car Insurance

When You Should Continue Helping Out: If a child is a dependent living at home and driving their parent’s car, it will likely be less expensive to keep them on the plan, but the child should still pay their share of the premium. Should they need to file a claim, the child should also cover the deductible and any other costs. 

When Your Child Should Take Over: If the car is in the child’s name, they most likely need to have their own insurance. Also, car insurance premiums can vary dramatically state to state in the U.S. 

The Gray Area: Keeping young adults, who are considered riskier and therefore more expensive, can disproportionately skew your overall insurance costs. By removing them, the parents’ premium will often decrease dramatically, as will premiums for added protections like umbrella insurance. Your decision in this matter may simply come down to your own financial needs more than anything else. 

One More Thing: Make sure your child is eligible to stay on your insurance. If the insurance requires that they be a dependent, confirm that they meet the requirements, or you may find them not covered should you need to file a claim. 

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