As parents, we strive to provide the best for our children and help them build a strong foundation for their future. As you plan for your retirement, you want the peace of mind that comes with knowing that your adult children have a realistic long-term financial plan in place so that you can retire when and how you want to.
According to Pew Research based on US Census data, about one in three US adults ages 18-34 live in their parents’ homes. How can you set your adult children on a path to financial independence without the need to fund them through adulthood? Start by providing guidance, instilling valuable habits, and sharing a commitment to their long-term success. Below, we suggest effective strategies and considerations for assisting your adult children in their financial journey.
Cover The Basics
Promote independence while offering support: It’s essential to balance providing support and allowing your adult children to learn from their experiences. Encourage them to make their financial decisions while being available as a resource for guidance and advice when needed. You can help them understand the value of living within their means and making conscious financial choices.
Create a plan for financial independence: Work with your adult children to develop a comprehensive plan that outlines their financial goals, timelines, and strategies for achieving them. Help them create a budget and a system to track their expenses. As part of the process, emphasize the significance of saving and assist your adult children in setting realistic savings goals. The goal should be to transition them to cover their expenses, such as rent, utilities, and insurance, to instill financial independence.
Introduce financial tools and resources: You can help your adult children become familiar with financial tools and resources that can help with budgeting, saving, and responsible spending. By introducing them to personal finance resources like apps, online budgeting tools, and financial calculators, you can empower them to make informed decisions and manage their financial lives effectively. Recommendations of websites and online articles such as “8 Financial Tips For Young Adults” are a great way to spark an interest in financial planning. On a more personal level, discuss topics like credit, investments, and financial goals, and make sure they understand the value of long-term planning.
Teach the importance of credit management: Educate your children on the value of maintaining a good credit history, as it can positively impact their ability to secure loans, rent apartments, and even find employment. You can guide your adult children in establishing good credit by encouraging responsible credit card usage and timely bill payments. Conversely, ensure they understand how debt can negatively impact financial independence. Educate your adult children about the various types of debt, such as student loans and credit card debt, and the importance of managing them responsibly. Take it further and teach them strategies for minimizing debt, such as paying more than the minimum amount due and prioritizing higher-interest debts first.
Next Steps Toward Financial Independence
Emphasize the significance of long-term financial planning: Discuss with your adult children how long-term financial planning can benefit them as they embark on their journey of financial independence as an adult. Familiarize them with financial planning concepts, retirement savings, insurance coverage, and estate planning. Encourage them to consult with financial planning professionals to ensure their plan aligns with their goals and aspirations.
Highlight the benefits of savings: Discuss the importance of savings when creating a comprehensive financial plan. Support their savings goals and encourage them to build an emergency fund to cover unexpected expenses and pay off outstanding debts. You can also discuss the benefits of starting early and the opportunities for making regular, automated contributions to long-term savings accounts and guide them on different savings vehicles, such as IRAs or 401(k)s.
Introduce investments: Introduce your adult children to investing if you still need to by explaining the basics of stocks, bonds, and other investment vehicles. Talk to them about starting to invest early and emphasize the power of compounding over time. You can even help them set up investment accounts and guide them toward investment options that align with their risk tolerance and goals.
Offer guidance on major financial decisions: As your adult children face significant financial milestones, such as purchasing a home or starting a business, offer guidance and support. Sharing your experiences and insights can help them understand the implications of their decisions. Advise them to seek professional advice when necessary, such as consulting a financial planner or accountant.
By launching your adult children financially before you retire, you can empower them to build a solid financial foundation for their future. The goal is to equip them with the skills and knowledge they need to thrive while providing the freedom to focus on enjoying your retirement. At Northern Way, we understand the complexities of navigating financial support for adult children while planning for your financial future. We’re here to help you create a financial plan that meets your needs and your family’s. Please don’t hesitate to reach out to us to start a conversation about how we can help.
