ON THE MONEY: Helping your kids to be financially independent
When it comes to raising children, I jokingly tell my new acquaintances that there are several important milestones in our children’s lives.
The first is graduation from high school, followed by graduation from college or other educational institution.
The third milestone occurs when they have a job and are living on their own.
The final milestone is reached when they are no longer on your health insurance plan and are paying for all of their own expenses.
It often turns out that one additional milestone worth celebrating is when they stop viewing their parents as “deep pockets,” and don’t ask us for money.
I honestly think that too many of us parents coddle our children financially.
Sure, we all love our kids, but one of our most important job descriptions as parents is to prepare our children for the real world, and that means equipping them to pay their own pay and, hopefully, prosper.
Teaching your children to be financially independent is no bed of roses.
More than a few baby boomers have learned this fact the hard way, since more than half of boomers revealed that they have allowed their adult children to move back home, rent-free, according to a recent survey that was conducted by Ameriprise Financial.
Actually, my wife and I were in this group as well, when it appeared two of my children were attempting to “find themselves” and moved back home.
We were and are of the opinion is that it is better for a child to move back in when they are 25, rather than 40.
Almost all of the respondents (93 percent) said they have provided some form of support to their adult children, such as helping them pay for college tuition or a car.
When my kids reached age 16, we required each of them to earn their own spending money by working for someone other than us.
Moreover, we made it clear early on that we would pay for their college tuition, room and board, and books while they were undergraduates, and then for only four years.
Graduate school was on their own nickel. Two of our children encountered a few bumps in the road, but largely stuck to the plan.
Many financial planners, me included, believe that one of the biggest issues facing many retired individuals is having their children remain financially dependent on them.
Shelling out money for adult children can quickly sap a retirement nest egg.
Certainly, it is tough to say no to your child, so a better approach is to teach our children financial basics while they are still in high school.
A good place to start is with budgeting, and there is a very good website for this purpose – mint.com.
Here you can teach your children to track their own spending, thereby making is fairly easy for them to prepare a budget.
The website also has some user-friendly calculators and other financial tools, as well.
After your children have graduated from college, the skill of careful budgeting will help them manage their money, but your kids may still require some help, due to the initial costs of living on their own.
A good rule of thumb is to take no more than two years to get your kids off the dole.
You might perform this financial weaning process in stages by removing support for certain items each quarter or every six months.
For example, you might pay half of their car payment for the first six months and then stop.
Similarly, with auto insurance and rent. Many planners believe that help with student loan repayments should continue for 18 to 24 months.
I am not in that camp, since I believe that parents should foot the bill for college if they can afford it.
As I have written in other columns, it may be better for all concerned if a child completes his or her first two years at a smaller, less expensive school (perhaps closer to home) and then transfer to a “name” college after having achieved some initial academic success.
Naturally, we should do what is best for our own children, but financial independence is a gift that we should all ensure that our kids have received.
Got a financial planning question for Greg? You may email him at email@example.com.
Greg Roberts is a certified financial planner with 35 years of financial and estate planning experience.