Are You Helping Your Adult Kid or Enabling?
Self-reliance grows out of habits and planning. Here’s how to help them launch
When you and your spouse bought your first home, it likely followed a period of saving and scrimping for a down payment, setting aside a painfully large sum every month, forgoing expensive entertainment and travel, perhaps living in a dingier rental than you would have liked.
Same for your eventual retirement. If you’re at all close to meeting your goals, you likely developed a detailed plan of saving – and of spending less – and stuck with it.
Helping your adult kid through a rough financial period is much the same. They, with your help, need a detailed plan with milestones and a timetable for becoming independent and self-reliant. That’s the path out of mom-and-dad’s home and into their own, and also the path that preserves your retirement savings and family harmony.
First off, if you have an adult child under roof, take heart. You’re not alone. Among those between the ages of 25 and 34, 22% lived with their parents in 2017, nearly double the level in 2000. Delayed marriage, rising rents and student debt are among the reasons.
The nonpartisan Urban Institute looked into whether millennials who lived with their parents for a bit used that time to save up to buy a home, a key driver of long-term net worth. The news was discouraging. The report found that young adults between 25 and 34 living with their parents were less likely to form households and be homeowners 10 years later, compared with people in the same age group who were renters.
How to help your kid(s) beat those odds? You can certainly welcome them home, make them a nice dinner, do their laundry, ask them how their day was and hope for the best. If you’re lucky, they won’t play their music too loud. And if your adult child has a long history of making plans and meeting goals, perhaps all will be well.
If not, perhaps some difficult conversations are in order, ones that sadly have you sticking your nose into your kid’s affairs. At the least, these conversations should involve you explaining and cheerleading about how a financial goal is set and met. Have you discussed how long they’ll be under your roof? Each of you should answer that question and compare and discuss. Let’s say you settle on 18 months. Then, your kid needs an 18-month plan to achieve self-reliance. And given you’re underwriting the plan, you should see it and approve of it and receive updates of progress.
A note about tone: Being calm, nonjudgmental and encouraging is important. Be businesslike in these talks, not parental. Don’t shame. Celebrate progress. Console them about failings and encourage them to do better. Keep in mind, this may all be a steep learning curve for your child. Conducting yourself calmly and kindly can strengthen your relationship going forward. If these talks become too difficult, consider seeking an outside party to mediate, such as a financial advisor.
Key components to becoming financially independent:
Employment/income: How much does your adult child make? Is the job secure? If it’s not enough to live on independently, is there a path to such a role and how soon? Or, do they need to seek a different, better-paying job? Or perhaps seek some additional training or education that would lead to one? Indeed.com, Glassdoor and LinkedIn, as well as USAJobs.gov and similar state job websites, are all resources anyone in the job market should spend time with.
Spending: Where’s the money going now? Keeping count is important. Can spending be reduced to tackle the matters below? Play to your millennial’s strength: living online. Apps such as Mint and Monefy bring seamless budgeting to their smartphone.
Debt: Does your kid owe money and, if so, how much and what are the monthly obligations? Some family chats about how to tackle debt will be helpful. It’s often wise to take years to repay low-rate federal student loans. High-rate (and variable) credit card debt, on the other hand, is bad to incur and carry, and a plan to repay it soonest is essential.
Credit: Are they still using a credit card attached to your account? At the very least set spending expectations. Hint: emergencies only. It’s time for the Bank of Mom and Dad to close down for anything else.
And encourage your kid to apply for their own card. No co-signors. Millennials have a built-in skepticism about credit cards, preferring to use bank debit cards. That’s a great instinct, but alas, not an ideal move. Debit card transactions do not help build a credit score. If your young adult expects to rent an apartment, buy a home, buy a car or get the best insurance rates, a strong credit score is going to play a big role. Somewhat paradoxically, one of the best ways to build a strong credit score is to have a credit card that is used sparingly and paid off in full each month.
Savings/cash on hand: Do they have any money, an emergency fund? Building one is essential and needs to be in the plan. Encourage them to get in the automated habit of saving something every month. It can be discouraging to hear they need at least three months of living expenses set aside. Just have them focus on starting down that road by saving $50 or $100 or more each month. The only way to be successful is to set up an automatic transfer from their checking account into a separate savings account.
Healthcare: Do they have coverage at work? Or on your policy? It’s too risky to go without insurance.
OK, you’ve got a picture of your adult child’s current financial situation, and, through this exercise, quite possibly they have one for the first time, as well. Now, work together to define what they need to have to live independently. Perhaps $6,000 in credit card debt needs to be paid off. And a 90-day cushion of savings built up. And an upgrade in job status that requires some hard work and long hours or training. That can’t all happen in the 18th month, so you need a schedule that takes you there, month-by-month. With some room built in for unpleasant surprises.