How can I ensure my young adult children become financially independent?
Did you really think that when your child graduated from college he or she would automatically become financially independent? Think again. Based on Charles Schwab’s “2010 Families & Money Survey,” adult children may be more dependent than ever on their parents.
According to Schwab, 41% of parents still provide some level of support to their children ages 23-28, whereas a whopping 86% of “sandwich generation” parents report they were fully independent by the age of 25. Why the swing? College debt, unemployment and poor consumer spending habits are cited as the primary causes of this longer-term dependency.
While helping adult children achieve financial independence is an important goal, parents have an even greater responsibility when it comes to their children’s financial education. That responsibility is to communicate Our Lord’s teachings on money both by word and by example. Deuteronomy 6:6-7 says, “And these words which I command you this day shall be upon your heart; and you shall teach them diligently to your children, and shall talk of them when you sit in your house, and when you walk by the way, and when you lie down, and when you rise.”
Of course, just because you provide a good example and solid teaching to your children doesn’t mean they will follow your counsel. After all, they do have free will. But good example and teaching increase the likelihood of a good outcome exponentially. Proverbs 22:6 alludes to this when it says, “Train up a child in the way he should go, and when he is old, he will not depart from it.”
Divide your children’s financial education into two parts, with the first part being from the age of reason through high school. You may be surprised that I suggest you start at about the age of 7, but that’s not too soon. You’ll only be teaching basics at this age: the concept of earning an allowance and allocating that allowance between giving, saving and spending. Then, as your children get into the teen years, you can hand over increasing levels of responsibility: Have them manage a portion of the budget that relates to them, such as clothing. Don’t be afraid of letting them make mistakes while they are under your guidance.
Second, make good use of the college years to further your young adult children’s financial independence. Have them take an active part in funding at least a portion of their college expenses through summer work and work-study programs during the school year. Expect them to fund a reasonable portion of discretionary expenses as well, whether it’s clothing, cell phone, car privileges or entertainment. Learning to get by on limited resources builds good character traits and teaches important lessons about the opportunity costs associated with making decisions.
Before leaving for college, young adults should have a checking and brokerage account and know how to use them. It’s also important for you to have “the talk” with them. No, I’m not referring to chastity, I’m talking about credit. I’m not a believer in college students establishing credit prior to six months before graduation — and then, only if they have a good grasp of the difference between productive and unproductive debt and if they have shown themselves to be responsible money managers.
Teaching your children to become effective stewards of Providence will not only help them achieve financial independence, but even more important, live out their independence in ways that honor the Lord. God love you!
Phil Lenahan is president of Veritas Financial Ministries (VeritasFinancialMinistries.com) and author of 7 Steps to Becoming Financially Free: A Catholic Small Group Study (OSV).