Teaching Your Adult Children About Money

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Teaching Your Adult Children About Money

After footing the bill for decades of diapers, babysitters, back-to-school supplies, summer camps and extracurricular activities, most parents look forward to the time when their children become adults and take control of their finances. However, many parents are learning that while their grown-up kids are living like adults, they are still acting like children when it comes to managing their money.

Although experiences vary widely, many young adults look to their parents for some type of financial support. Some ask for help paying off student loans and credit card debt. Others seek support to meet monthly rent, car payments, save for house, health care costs or other living expenses. Many move back home to better balance their budgets while starting their careers or recovering from major setbacks like job loss and divorce.

In fact, the number of U.S. households with children over the age of 18 who still live at home has grown dramatically. A study by The Joint Center for Housing Studies of Harvard University found that one in seven men and one in 12 women between the ages of 25 and 34 live with their parents. 

Given these facts, it’s not surprising that a recent study of pre-retirees and retirees discovered that the most-desired financial advice was help educating children about money. Research found that 52 percent of respondents said the most important advice they could get from a financial advisor – if costs were not a concern – was “help to make my children more financially savvy.” In households with financially dependent children, 61 percent rated it as their top financial advice need. 

Further, researchers learned that baby boomers expressed great concern about their children’s financial capabilities and planning. During the study, these concerns often outstripped worries about their own retirement preparation including receiving help with issues related to Social Security, pensions and health care benefits. Parents revealed that they feel daunted by the economic complexities and lack of job security that their children now face. Moreover, many indicated that their children would respond better to an outside, professional opinion.

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What are some of the financial complexities facing today’s young adults? Many college graduates are burdened with high college loan payments and credit card debt. A recent report from the National Center for Education Statistics revealed that 65 percent of bachelor’s degree recipients borrowed to finance their undergraduate education; the average amount borrowed was $19,300 and the average monthly loan payment was $210. A Nellie Mae study found that 76 percent of undergraduates have credit cards and the average outstanding balance was $2,169. Other key issues include difficulty in finding well-paying jobs and establishing careers, rising housing costs and indulgent parents and grandparents.

Whether your adult children are sharing the family home with you or asking you to co-sign the loan on their next car, consider these tips for helping preserve your financial security.

Before you agree to provide financial help, consider the nature of your child’s request and your own situation. Find out why your child needs money and whether or not he or she may seek your help again. Then consider your own finances and assess whether you’ll be putting your current budget or future retirement savings in jeopardy by supporting your child. There are no scholarships, loans or financial aid programs for retirement; you may need to put your children second this time. Your children have decades to build their financial security, while you may be just a few years away from your retirement date.

Even if you have the resources to help your child financially, you may want to consider the long-term consequences before agreeing to help. Well-intentioned gifts may be too much of a good thing and could encourage lifetime financial dependency. What you gain in today’s good will may lead to future resentments that hurt your adult parent-child relationship.

Establish boundaries and create a plan. Whether your child is moving home after college or needs help paying down credit card debt, you can avoid problems later by making sure that both parties know what is expected. Once you’ve agreed on a plan, consider drafting a specific, written agreement. If your adult child is returning home to live, be sure to communicate your ground rules such as, paying rent and living costs and sharing household responsibilities.

Set a time limit. Before giving your child a loan or allowing him or her to move back into the house, work together to decide exactly how long the situation will last. For example, establish a payoff date for the loan and decide on a move-out date from your family home. If you are giving him or her a set amount of money per month, elect a date by which he or she will be financially independent again.

Encourage savings habits. Want to motivate your adult child to start saving for retirement, continuing education or a down payment for a car or house? You can reward financially responsible behavior by giving your child a match on any money that they set aside in a long-term savings account, or buying them a new pair of cufflinks for an upcoming job interview.

Be a role model. Demonstrate positive money management skills by financially preparing for your own retirement and building the foundation for a secure future. Consider working with a qualified financial advisor who can help you stay on track financially while you provide the emotional and financial support that your child needs.

A financial planner can help reinforce healthy financial habits with your adult child like budgeting, planning and managing investments and debt. The Atlanta based Wealth Management Firm of Benedetti, Gucer & Associates can be a valuable asset in this regard. Their fee-based, fiduciary advisors have decades of experience preparing and implementing financial plans for their clients. Professional advice may be the boost you need to assist your child through a tough time while encouraging positive money management and financial independence.

The views expressed represent the opinions of Benedetti, Gucer & Associates and are subject to change. These views are not intended as a forecast, a guarantee of future results, investment recommendation, or an offer to buy or sell any securities. The information provided is of a general nature and should not be construed as investment advice or to provide any investment, tax, financial or legal advice or service to any person.

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