In Focus – SCCCU Blog

Mastering financial independence doesn’t happen all at once. Instead, it’s a “work in progress,” according to a report from the Pew Research Center. The report found that just 45% of young adults (age 18-34) say they’re completely financially independent from their parents. Those who aren’t financially independent frequently have costs for things like household expenses, cell phones, and streaming services covered by the ever-trustworthy “bank of mom and dad.”

The good news is that of those young adults surveyed who aren’t financially independent, 75% say they’ll eventually get there. In other words, even though they may be leaning on their parental units for now, they’re confident it’s just a matter of time before they spread their wings and fly. Parents are similarly optimistic, with 72% saying they think their child can, eventually, achieve financial independence.

And that optimism is excellent — but if you’re a parent in the throes of continuing to support your adult child financially (at the same time you’re trying to pursue your own goals, like saving for retirement), you might be wondering: How do we give them a little nudge? It’s an important question to ask sooner rather than later. Furthermore, recent research found that more than half of parents sacrifice financial security to help their adult kids.

Here are four of the best ways to cut the financial cord and help the young adults in your life find financial independence:

1. Understand the cyclical nature of what you’re doing. If you’re helping your children with their finances to the detriment of your own (like giving them so much money that you’re forced to put your retirement savings on hold), it's more likely that your children may need to step in and help you down the road, perhaps with costs for long-term care. This may happen when your offspring are trying to launch their own kids, which could be an impossible burden. So, ask yourself: Am I better off pushing my kids to be more financially independent now so I can be more financially independent later?
2. Offer help with information, not with cash. Sometimes, your children need advice about how to make their financial lives function better. Thankfully, there are steps you can take to guide your child without opening your wallet that will help them get closer to financial independence. For example, you can help them make a budget, track their expenses, or figure out how to sign up for the new student loan repayment program so they can maximize their monthly outlay.
3. Start gradually. Today, more young adults aged 18-24 live with their parents than in the past, according to the Pew Research Center. However, 72% of young adults who still live at home with their parents say they somehow contribute financially to the household. Some help by covering the cost of groceries, taking on utility bills, or contributing to the rent or mortgage. If you have adult children under your roof who aren’t kicking in their fair share, it’s time to sit down with them and review your household budget. Identify realistic ways for them to contribute — not just to reduce your expenses but also to get them used to being responsible for a monthly household expense.
4. Set some limits. Whether your child is living with you or you're giving them a particular sum each month (or paying specific bills), it’s time you establish a roadmap for exactly how long this support will continue and how you’d like to phase it out. Be above board with your kids about your needs and plans so they can develop their own strategies and best practices for financial independence. It may seem like tough love at first, but with you to guide them along the way, there’s nothing your little (big!) ones can’t accomplish.