John Boland, a financial planner in Montpelier, Vermont, also has tested his 17-year-old near-graduate with a debit and credit card, necessary because the teen is on a travel sports team. "He knows that if he does anything foolish, he'll lose it," Boland says.
This past winter, when Boland's parents asked their grandson what he wanted as a Christmas present, he said cash for college in the fall.
Roll Over Into Trusts
When higher dollar amounts are involved, young adults face pressure from families and financial advisers to lock the money up, especially for minor accounts that turn over to the child at age 18 or 21, depending on state law.
"I've had some of my clients say: 'Can we not give him the money?'" says Kevin Ruth, head of Private Wealth Planning for Fidelity. "The reality is, you can't."
Matt Brady, senior director of planning at Wells Fargo Private Bank, says he has seen parents convince children to roll their newly acquired funds into a family partnership or trust, so they can continue to oversee it.
"The worst thing is to just have them take control of money they can't manage," Brady says.
For money in trusts, it all comes down to the provisions for distribution. Many of them set limits preventing the youngsters from getting anything unless they complete tasks, like graduate.
Fidelity's Ruth says the trend is to keep the rules as restrictive as possible.
Incentives are crucial, he says. "You can get money if you start a business or get a masters degree. A lot of times, they can only get out as much money as they earn. They have to show up with a W-2," Ruth says. "And if you're not doing the right thing, you will get zero money."