Is financial support keeping adult children from achieving independence?
As a parent, you want to ensure your children have a good life, but at what point are parents supposed to say enough is enough when it comes to supporting adult children? According to a new study from the financial experts at SunTrust, parents may be waiting too long to cut the financial cord. As a result, their children are less likely to achieve financial independence.
Brian Nelson Ford, a financial well-being executive from SunTrust, explains why financial support may be keeping Millennials from moving forward.
“They [Millennials] are making a decision that anybody of any age would make; they are accepting financial support that’s offered to them. When you don’t understand how to budget, save and invest – and your parents are willing to step in and help fill the gap – dependence is often the result.”
In other words, the support that parents provide is essentially keeping Millennials dependent because it’s comfortable and easy. As a result, there’s little incentive for Millennials to take action to achieve total independence. And while this setup may be keeping Millennials from advancing, 47% of parents report they are stressed out trying to help their kids financially.
Where are parents providing the most support?
According to the survey, most parents are not supporting their children’s total budget. Parents are covering for specific expenses:
- 14% pay for a child’s cellphone bill
- 13% cover children’s car insurance
- 12% cover all household expenses
- 11% pay for medical expenses
- 9% cover a child’s monthly mortgage or rent payment
SunTrust’s experts like Ford believe cutting the financial cords and transitioning these expenses so that children pay their own way would be better for both parents and children. However, that may be a tall order considering the challenges that Millennials face in finance – high student loan debt that must be repaid paired with limited job opportunities and low starting salaries even when they can find jobs in their field.
How can financial independence be achieved?
The SunTrust article provides a list of four ways Millennials can work to develop financial independence:
- Tracking spending
- Set savings goals
- Develop a credit history
- Start investing now
While that’s definitely a solid foundation for financial success, it may not necessarily help Millennials get over the hump of taking on expenses that their parents cover. It’s simply good advice for the four steps anyone needs to take to achieve and maintain financial stability over their lifetime.
“Parents and children must sit down together to create a workable action plan that transitions expenses to the children gradually, taking into account student loan repayment and potentially slow income advancement,” says April Lewis-Parks, Financial Education Coordinator for Consolidated Credit.
Consolidated Credit advises families to take these additional steps to turn high-level recommendations like “track spending” and “set savings goals” into actionable strategies. Here are some additional tips to help you get started:
- Student debt payments should be assessed and alternative repayment plans should be explored. Particularly if the borrower is facing challenges with income, there are federal student loan repayment plans that lower your payments so they fit your income. Making this adjustment often means the Millennial can start picking up expenses that parents are covering.
- Create an expense transition plan. Look at each expense the parents are covering for a child, comparing to the child’s income and other budgeted expenses. Evaluate when expenses can be transitioned, as well as how much more income the child would have to earn to cover transitioning those bills. This can also help determine salary negotiation targets so the child knows where they need to be as they negotiate during interviews and yearly reviews.
- Financial independence must take precedence over career independence. A common folly of youth is the belief that becoming a “corporate drone” is not a lifestyle worth living. So young workers often try too early to start businesses or focus on crowd-funding business startups because they have a great idea that they believe they can make into a career. However a child’s career dream can’t come at the expense of the parents’ retirement fund. The one advantage of “working for the man” is that the man tends to pay consistently and in a way that allows you achieve financial independence. If you have an idea, get an office job to support yourself while you develop the idea in your spare time. Don’t make a business startup your primary job at the expense of your parents’ ability to retire comfortably.
Finally, children need to use credit wisely right out of school. A secured credit card can be a great tool for building a positive credit history without a high limit than brings on the added risk of creating too much debt. The balance on the card should be paid off in-full every month and carrying balances over from month-to-month should be strictly avoided – especially until all student loan debt has been eliminated.
If you need help making an action plan that works to help everyone achieve and maintain financial stability, we can help. Call Consolidated Credit today at 1-888-294-3130 or complete and online application and let a certified credit counselor help you review your budgets and debts together so you can find solutions that foster financial independence.