Raising Financially Independent Children
As parents, we all want our children to grow up to be successful. For some, this means going to college. For others, this may look like pursuing a trade or starting a family. No matter what our definitions of success may be, the majority of parents all want at least one common trademark of success for their kids: Financial Independence.
What Is Financial Independence?
Financial independence means that adult children no longer need the financial support from their parents or guardians. This doesn’t mean that a parent has to completely cut off their child, they can still provide some form of financial aid. This just means that a child can fully support their financial obligations without relying on support from their parents. While most parents hope that their child will achieve this point in their life sooner than later, for most young adults this does not occur the second they turn 18. For some, it may even be years after they move away from home – or longer! Why?
Barriers to Financial Independence
Unfortunately, young people are facing more barriers to financial independence than ever before. For starters, debt is a huge issue in the United States today, often beginning with student loans. Today, 70 percent of all college students graduate with a significant amount of loans. Collectively, over 44 million Americans hold nearly $1.5 trillion in student debt. That means that roughly one in four American adults are currently paying off student loans.
When young adults graduate from college, the average student loan borrower has $37,172 in student loans, which is over a $20,000 increase from just 13 years ago! With that same amount of money, individuals could have put a down payment on a home, purchased a new car, or even started their own businesses.
Additionally, most young adults are renting rooms and apartments, and these costs continue to rise substantially. The median rent in the United State rose 2.8 percent over the past year to $1,445, which is the fastest pace of appreciation since May of 2016. Rent costs are rising fastest in some expected markets, such as Seattle and Sacramento, and in many unexpected places as well.
Furthermore, most Americans have considerable consumer debt as well. As you can probably imagine, being financial independent seems like an impossible option for these individuals. It is no surprise that the rate of new accrued debt is highest among young adults, with credit card companies targeting vulnerable kids from the moment they turn eighteen years old. The average balance among college students in 2013 was $499 and the median was $136, and that amount is even higher today.
As a result, young adults truly face an uphill battle when becoming financially independent from their parents. In addition to these obstacles, many young people do not have the knowledge base to know how to manage their money in the first place. A survey conducted in 2017 of 455 college students revealed:
- Fifty-eight percent indicated they are not saving anything.
- Thirty percent indicated their parents taught them nothing about managing money.
- Fifty-one percent received no financial education in high school.
- Forty-three percent are not tracking their spending.
Additionally, a 2018 research study found similar conclusions. A sample of 3,050 adult individuals participated in the National Financial Capability Study, a survey that sought out to review and assess the financial practices and knowledge of U.S. adults ages 18 and older. The NFCS studies the individual’s financial knowledge and aptitude, including their understanding of basic economic concepts such as interest rates and inflation, and assesses their use of credit cards, conventional financial institutions, and alternative financial services. The results showed that:
- Nearly one out of every three young adults were found to be “financially precarious” because they had poor financial literacy and did not have adequate management skills of their money or stability in their income.
- Similarly, their counterparts in the financially striving category, which composed 10 percent of the individuals being studied, struggled with certain management behaviors like credit card usage and budgeting. This group of individuals also put their health at risk by skipping doctors’ appointments, health exams, and prescriptions due to financial constraints.
- 22 percent of the 18- to 24-year-olds in the study sample were categorized as being financially stable.
- About 36 percent of the individuals involved in this study were considered to be “financially at risk” because they had experienced an unexpected drop in income during the previous 12 months. These individuals reported that they had no savings to cover their living expenses for 3 months if needed. They also lacked the proper resources to come up with 2,000 dollars in case of an accident or emergency.
Fortunately, there are a variety of things parents can do to help their children, both before they reach adulthood and along the way after they turn 18 years of age. If you want to raise financially stable children, you have to instill these ideas as they are growing up into young adults. First and foremost, having a financially independent young adult requires first raising a financially independent child.
How Can Parents Raise Financially Independent Children?
While your young children would not (should not) be financially independent from you just yet, helping children grow up knowing about the importance of money management is the first step in a lifelong journey of financial health. Teaching your preschoolers the value of money, your children how to spend responsibly, and your adolescents how to save wisely will do wonders for their financial growth. An important aspect of this is also discussing the danger of debt, as well as how interest rates and monthly payments work!
However, once your teenagers discuss their plans after high school, it is important that you discuss finances with your child and make a plan together. Unmet and misguided expectations can be a major source of conflict and frustration for both you and your child. Unfortunately, there are many stories of families with children over the age of 21 (and sometimes even into their 40s!) who still are overly dependent on their parents. Once it reaches this point, it can be extremely challenging for parents to set limits with their adult children regarding finances. The parents often feel completed depleted with their children. It’s understandable that you want your child to be happy, but it can be frightening when thinking that you’re not doing enough to help your child get there. This is a near impossible situation! On the other hand, when parents of young adults are intentional with their children, they CAN become financially independent. Here are some practical ways to plan ahead, and set your child up for success:
Talk about it
Incorporate money matters into your conversations. While you may feel like your child knows about financial management, it is important to refresh their memory. Many college students feel trapped in trying to pay their bills while also having fun with friends. Speak with them about this, and let them know that you are there for support. Be sure to talk WITH your child, and not at them. It should be a conversation and not a lecture. Being calm, supportive, and encouraging will go much further than reprimanding or instructing.
On the other hand, make sure that your child knows your expectations. They need to be clear and forthcoming! Do you expect them to pay for their own college, or can you provide support for tuition? What about books? Can they live with you after they turn 18, and if they do will there be rent? Are you willing to cosign on a car payment or other loan? Many parents assume that their child knows what should be expected of them, and this is not always the case. Talk about money and what their financial independence would look like to you (as well as what they want it to look like for themselves)!
Make a Plan
Along these same lines, make a plan with your son or daughter! It’s okay to work with your child and create a plan together to end your financial support. You do not want to unintentionally harm your child by enabling them to make decisions that aren’t always focused on their financial security. Whether your child quits school to pursue a different career path or they graduate college, they need to be increasingly invested in their own financial wellbeing and strive toward being self-sufficient. While this does not mean parents should abruptly put their adult child on the street, they do need to take ownership of their own goals and plans to become self-reliant.
When you first sit down to make a plan and as time goes on, it is important to set boundaries and maintain them. Setting limits on the financial assistance you are willing to provide will help your child plan ahead and make more “adult” decisions, while also preventing you from becoming frustrated or even financially overburdened yourself. If you always step in with a solution every time your child needs help or is in trouble, they won’t learn the importance of meeting their needs while setting aside their wants for their future. While it may feel good for parents to do this, the implicit (or even explicit) message to the child is, “You’re not competent enough to make it on your own.” In turn, this will only lengthen the time needed for them to truly reach financial independence. It is also important to note that your child may experience a setback if a crisis comes up in their life. These situations may include problems in college, a difficult breakup, or even health issues. This is acceptable, as long as there is a plan in place for the adult child to become financially independent once again.
Overall, there must be firm and loving boundaries in place with your adult children, and all of them don’t necessarily need to be financial. In fact, the more that you set boundaries and stick to them in all areas of your relationship, the more your kids will understand financial boundaries specifically. Allison Bottke, author of the book “Setting Boundaries with Your Adult Children,” discusses limit setting from her professional experience, but also from her personal experiences with her own adult son. She lays out guidelines for boundary setting by using the acronym “SANITY,” and many parents have found her advice extremely helpful. According to Bottke, Here is the definition of SANITY:
- “Stop: As parents, it’s important that we change how we respond to our children. You shouldn’t try to change them. Stop the money flow. End our own negative behavior. “For so long we were in the midst of drama, chaos and crisis,” Bottke says. “I had to stop letting my son push my buttons and I needed to stop accepting the consequences for his behavior.”
- Assemble supportive people: Chances are very high that you have friends or loved ones that have already experienced what you’re going through. It’s okay to ask them for support or guidance. Knowing you are not alone in this process will help you tremendously.
- Nip excuses in the bud: It’s very easy to enable your children, simply because they are your children. Don’t encourage excuses or let them influence your decisions.
- Implement rules and boundaries: Sit down with your child, make a plan, and discuss how you are going to follow it together. Give them a specific date that marks when you will stop financially supporting them. Creating a specific timeline with set dates is a great way to stick to a plan and can also be a great learning lesson for your children.
- Trust your instincts: If you have a feeling that your child needs financial support at a specific moment or that they’re not financially able to support themselves on their own, listen to your instincts. “For me this meant getting in touch with my own life and fixing the messy person in my life – me,” Bottke says.
- Yield everything: You cannot control every aspect of your child’s life. Trying to fix their problems will only stop them from growing and becoming independent. You need to love and support them but still avoid enabling them whenever you can.
Just remember, the sooner you are able to teach your child about the value of money, the sooner they will be able to understand and appreciate it. We sincerely hope that these tips will allow you to support and encourage your adult child as they become financially independent. For further questions on how you can support your child, please contact the Children’s Bureau today.