There is nothing easy about being on your own for the first time, especially if you have not had a full-time job before or managed your own finances. All too many young adults today are woefully unprepared to face their financial commitments without partial or significant assistance from their parents. As parents our first inclination may be to provide a strong financial buffer to help our kids get off to a great start in life. Even if we can afford to do so, it’s important to think about what is best for our kids in the long run. Learning to be financially independent is one of the most import lessons they will ever learn.
There is a lot to be considered: rent, food, utilities, transportation, insurance, not to mention cellphones, cable and WiFi and possibly student loans. So how do you help your kids make the transition from home to independent living while gently nudging them to clip the financial apron strings. Here are a few tips for getting started.
Start early. Children can grasp basic money skills by middle school or even earlier, depending on the maturity of the child. Start by letting your kids know if they want to make non-essential purchases, such as a video game or tickets to a concert with friends, they need to save their money and pay for it themselves. Start them on a path to understanding the concept of work and reward by having them earn extra money for doing special chores. This helps instill the value of a dollar early on. It also helps to talk to them about how you have to make choices about how you spend your money, and how you have to prioritize what is most important – i.e., paying the rent over buying a new outfit or taking a vacation trip.
Cover the basics. Use any question about money as a teaching moment. Explain what may seem obvious to you, such as balancing a checkbook (online banking makes that so much easier than the old-fashioned way) or understanding the withholding taxes on a paycheck. (I can remember learning the hard way that more checks in my checkbook didn’t necessarily mean I still had money.)
Help them learn to budget. Sit down with your soon-to-be independent progeny and go over the expenses they can expect and the money they will have coming in. Have them make a stab at allocating their dollars and then go over it together. One of life’s certainties is that paychecks never go as far as you think they will and the cost of living is always greater than you expect. Even if your young adult child is going to be living in the dorm, they need to consider the expenses they will have that don’t fall under room and board, like toiletries, personal health items, clothes, shoes, gas, and “miscellaneous spending money.” Whether they have a part-time job or will be relying on help from you, they need to be aware of and account for how these expenses will be covered. If you are pitching in, it’s wise to set a monthly limit so he or she can learn to live within their means.
Agree on an exit plan. If you are subsidizing your child’s expenses, set up a plan to gradually wind down your assistance. For example, consider incrementally reducing the amount of financial support you will give. That will encourage them to work toward increasing their capability to pull their own weight. They can take on more hours in their part-time job, do odd jobs, or pick up an extra shift waiting tables. If they are living independently with your help and they can’t make ends meet without you, they may have to consider a smaller apartment or adding a roommate. If they are still in college, they may consider living on campus. Of course circumstances can change so it is important to be flexible enough to work with your child and they with you if the need arises.
Celebrate the positive. If your child receives a full-time job or a raise, offer hearty congratulations. Each accomplishment is another milestone on their path to financial independence. By working together and keeping the lines of communications open, you can help prevent their getting into deep financial trouble before you can intervene, and you can share in their pride when they succeed. The sense of worth they achieve for learning to live on a budget will reap life-long benefits.
Keep the door open. Experts agree that even when young adults achieve financial independence, it’s important to reassure them that they can always call you for advice and moral support.