How to Stop Bankrolling Your Grown Kid
7 ways to guide Millennials toward financial independence
Facing record student loan debt and challenging earning potential while representing a whopping 40 percent of nation’s unemployed, it’s no wonder today’s young adults are struggling to get a foothold on their personal and professional lives after college. As a result, these Gen Y’ers are delaying major life events like buying a home, and are often relying on Mom and Dad for money.
To alleviate some of the financial pressure their Millennial kids are experiencing, many boomer and Gen X parents keep bankrolling them well into adulthood.
While handouts may seem helpful, experts advise against excessive financial support without a strategic plan in place, since doing so may further hinder self-sufficiency.
Shannon Ryan, a certified financial planner and founder of TheHeavyPurse.com, points out that parents may not have created an adequate sense of ownership around money when their children were young and need to start.
"Though it may be difficult to initiate change with adult children after decades of being a human ATM, holding yourself accountable about the role you played is important," she says. "Creating a game plan together will trigger the move toward financial independence."
If you're among the millions of parents footing the bills for your adult children, it’s time to reevaluate this approach and figure out a better way to guide your children toward a secure financial future. Consider the following seven tips to break the dependence:
1. Let your child know the most financial assistance you’ll provide. It’s important to set a limit on how much money you’re giving, advises Jeff Rose, a certified financial planner and founder of GoodFinancialCents.com. He suggests parents treat financial support like an allowance and cut it off at a certain point.
An endless flow of cash enables poor spending decisions and doesn’t teach money management. Work with your son or daughter to devise a budget by reviewing essential living expenses and debts. Then, determine a reasonable amount for support and be ready to say “no” if your kid asks for more.
2. Schedule monthly financial reviews. Use them to review the newly established budget and your child’s financial progress. Not only do regular money meetings keep your kid accountable, but they can be motivational, especially if he or she realizes the gains made toward slashing expenses or paying down debt.
The reviews are also good times to ensure your money is being used wisely. Over time, gradually reduce your contributions so you can get your child to financial independence.
3. Set goals and match savings. Learning how to establish short- and long-term savings goals is crucial. Help your son or daughter outline these goals, like buying a car or saving for a down payment, along with the steps needed to reach these objectives.
Incentivize your child to stick with the plan by offering a savings match — like an employer’s 401(k) match — upon reaching a specific goal or milestone.
4. When loaning money, make it a business transaction. If you’re planning to loan your child money, don’t do so without some type of written agreement. Rose suggests that you make your children sign a promissory note to ensure you get paid back — with interest. Outline a repayment plan along with a deadline so your kid knows to take your money seriously.
5. Suggest a side gig. When I was living and working in New York City in my early 20’s, I could hardly make ends meet. Though my job kept me at the office past 9:00 pm most nights, I still found time to babysit and waitress on the weekends, which helped me pay down debts faster.
As part of your support agreement, encourage your son or daughter to seek part-time work, like a retail or bartending side hustle. There’s always TaskRabbit.com for hourly work, like helping move boxes or grocery shopping. The extra cash comes in handy and teaches the benefit of maintaining multiple income streams.
6. If your son or daughter is living at home with you, charge monthly rent. Stow the money away in a high-yield, online savings account. When your kid is ready to move out, you’ll then be able provide him or her with some money toward buying a home or paying for grad school.
7. Teach smart spending habits. After years of penny pinching, many college grads fall into the trap of living large as they begin earning steady income. So offer ways to help them take a big bite out of their monthly budget. Provide a resource of tools to save on everyday purchases like Couponsherpa.com for grocery coupons and the RedLaser app for in-store price comparison.
The sooner you do these things, the better for you and for your grown child.