Turning 18 is a significant milestone not just for your child who has just entered adulthood but also for you as a parent, to accept this moment of bittersweet feelings.
Your baby, who once depended on you for all their emotional, financial and other important life decisions, is ready to face the world, take decisions on their own and be prepared to face the consequences of those decisions.
The constitution now considers them to be decisionmaker in the efficient running of their country. They can now vote, drive, carry out financial transactions and acquire property.
You have a lot to deal with as a parent at this stage. Hold your emotions and accept this new phase of life. Your little birdies are ready to spread their wings.
Here are the 5 most essential steps that you must take as a financially aware parent, and make this transition easier for your young adult:
1. Important documents- PAN, Passport and Driving Licence :
Your child is now recognised by the constitution as a legally responsible and independent adult. They are now accountable for their financial transactions too. Hence, ensure they get their PAN Card, Passport and Driving Licence if they've learnt to drive. If your child already has a Passport and PAN on their name, it needs to be updated. A minor's PAN does not have their photo and signature, and a minor's passport expires every five years and at adulthood. So, ensure to update both documents. If you plan to give them a vehicle now, please let them earn a driving licence after a driving test.
2. Banking :
Time to open a bank account for your young adult and give them their debit card. After all, they will move out for studies or jobs and require independent transactions now.
If you already had a minor account for them, you need to convert it to a major account. The signing guardian and the child should visit the bank and update their KYC by submitting new documents.
Post this exercise, the world of finance opens for your child. They can now hold an independent debit card, or credit card, issue cheques and manage their savings.
Now that's a crucial time when you must keep them educated on money matters, the diligent handling of credit cards, the importance of credit scores and the list goes on.
3. Taxation :
The little ones have now entered the sphere of responsible taxpayers as per the constitution. In current times when young people have started earning via various means like freelancing, there are chances that your child's income might cross the exemption limit. Their income, which is now considered their individual income and is above the exemption limit, attracts income tax as per the tax slab.
4. Investments :
Your child now has the authority to decide their investments. If you have existing investments in their name, you need to update them with their new KYC. If you've bought stocks in their name, chances are you will need to open a new Demat account and transfer the shares to their name. In this case, most mutual funds require converting a minor portfolio to a major one.
While investing in stocks might not be an excellent idea at this stage, you can surely introduce them to safer investment options like term deposits and mutual funds, preferably in the form of SIPs and then start making them aware of the more complex ones.
Never early to learn investing!
5. Insurance :
While an 18-year-old can purchase any insurance in their name- Life or General, it generally does not make much sense since they don't have liabilities at that age. However, it's not a bad idea to purchase health insurance early since the premium is very low. Also, make them responsible for the insurance of their vehicles and other assets that they are using. Let them keep track of their insurance and handle purchases and claims independently. Insurance, not just as a product but as a concept, is essential, and growing adults must be made aware of their essentiality.
Apart from the above-mentioned financial steps, you must also make your child aware of the world outside. Sensitise them about Drugs and Alcohol abuse, guide them to take independent vacations and explore the world, encourage them to take up freelance or part-time jobs and manage their budgets. Above everything, teach them to explore and love their life. It does go a long way!
We all know that adulting is hard, and equally challenging is the transition phase to this adulthood. With the proper handholding, you can help your kids enter the world of adulthood and become financially aware and responsible adults.