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Family Wealth: Let’s Talk About Helping to Protect What You’ve Earned

Learn how to speak to your children about the importance of helping to protect assets through insurance and establishing good credit.

A woman and her adult daughter review some paperwork.

The son of one of Amy Kane’s clients had an experience he won’t soon forget. “He lived in a beautiful basement apartment in Chicago and an animal—likely a raccoon—broke a window to get in,” says Kane, Senior Wealth Planning Strategist at Wells Fargo Private Bank. “It then ran around the apartment for a few hours, causing more than $30,000 in damage.”

The kicker? “The son didn’t have renters insurance,” she says. The client wound up having to foot the bill.

Kane says this cautionary tale signals something you should discuss with your adult children or grandchildren: helping to protect their assets, from valuable household items to their credit score.

“You’d be surprised how many young adults don’t know about these topics,” Kane says. “Talking about them will help set your children up for financial success, and potentially prepare them to manage the family’s wealth one day.”

Here, Kane covers some of the most important concepts around insurance and credit to discuss with your grown children and grandchildren.

What to discuss with your children about insurance

Describe the need for renters insurance if they’re living on their own. Your homeowners insurance likely covers your child’s belongings if they’re living on a college campus. But if they are living in an off-campus apartment or they have graduated and are living on their own, they should get a renters insurance policy in their own name, Kane says.

Let them know: The policies are not expensive, she says, and could be a lifesaver in the event of a flood, fire, theft, or another incident, such as a rampaging raccoon. “Who would have thought that a raccoon would get in and terrorize an apartment?” she says.

Discuss getting their own health insurance. Under current law, your child can stay on your health insurance policy until they are 26, even if they are married or not living with you. After they begin working, however, you may want to encourage them to get their own policy through their employer, Kane says.

Let them know: Health insurance can be confusing, so it’s also a good idea to help them with their first enrollment. Explain terms such as “deductible,” “co-pay,” and “out-of-pocket maximum,” and help them identify the pros and cons of different plans if their employer offers more than one option.

Encourage them to become more independent by having their own car insurance. Most insurance companies have no limit on how long your child can stay on your auto policy. However, after your child starts earning their own money and living away from home, it’s time to talk to them about getting their own policy.

Let them know: Recommend they shop around and help them understand the different types of coverage: uninsured motorist, collision, bodily injury liability, and property damage liability.

Describe the security that comes with having life and disability insurance. Whether your child is single or getting married, having children, or purchasing their first home, it’s a good time to talk about the potential benefits of getting life and disability insurance—both short-term and long-term, Kane says. Encourage them to choose from policy options through their employer and help them determine if they need coverage beyond those offerings.

Let them know: Although they often appear to be in great health, more than one in four 20-year-olds becomes disabled before reaching retirement age, according to the Social Security Administration. It also might be hard for them to think about their own mortality at such a young age. But if they have a family depending on them for financial support, you need explain to them how life insurance can help protect them in case the unthinkable happens, Kane says.

What to discuss about building and protecting credit

Explain what credit is and why it’s important. Young adults may get into trouble when they get their first credit card, making impulse purchases and piling up debt. Help your child understand the potentially far-reaching consequences of this, including how it might affect their being able to lease an apartment, set up utilities, or sign up for a cellphone plan. Even getting a job, in some cases, depends on their creditworthiness. Explain good credit habits now and why they’re important.

Let them know: They could pay a certain percentage of interest, which could be higher if they don’t have established credit or haven’t made payments on time. Explain that interest rates are determined by their overall credit score, which helps banks decide whether or not to let them borrow money as well as how high or low they will set the child’s interest rate. (Learn more about how credit scores are calculated.)

Teach good credit habits. When your child gets a first credit card, review the first statement with them and explain what will happen if they make only the minimum payment, Kane says. “Show them how long it will take to pay off and how much they will eventually pay,” she says.

Let them know: Emphasize the importance of timely payments, because one late payment will stay on a credit report for two years or sometimes longer. Also talk about other factors that could hurt their credit score, such as opening too many cards, or taking too many car loans, leases, or personal loans.

Show them how to check their credit report and score. It’s possible that your child thinks they don’t need to check their credit report if they are paying their bills on time. That’s a mistake, Kane says, because many reports contain errors or fraudulent activity.

Let them know: This is an opportunity to show your child how to order their credit report for free once a year from the three major credit bureaus at annualcreditreport.com.

Michelle Crouch writes about consumer finance, parenting, and more from her home in Charlotte, North Carolina. Her work has appeared in Reader's Digest, Parents magazine, and The New York Times.

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Wells Fargo Wealth Planning Center, part of Wells Fargo Private Bank, provides wealth and financial planning services through Wells Fargo Bank, N.A. and its various affiliates and subsidiaries.

Wells Fargo & Company and its affiliates do not provide legal or tax advice. Wells Fargo Advisors is not a legal or tax advisor. Please consult your tax and legal advisors to determine how this information may apply to your own situation. Whether any planned tax result is realized by you depends on the specific facts of your own situation at the time your taxes are prepared.

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