Being a young adult nowadays is tough. With the current inflation and economic volatility, the financial outlook isn't exactly sunny. For most young adults, these challenging times translate into difficulty getting a place of their own. In July 2022, half of 18-to-29-year-olds lived with at least one parent, exceeding the previous record set during the Great Depression.
So, how can you help your child achieve their own financial independence? It’s understandable that you want to support your child as much as possible. But part of that support is helping them face the reality of adult life. Here are a few things to consider as you seek to guide your young adult child:
- Think twice before giving gifts. Instead of giving young adult children expensive clothes or random cash gifts, opt for more thoughtful gifts that will help them advance as adults, such as a financial coaching session or financial literacy class. Or you might offer to match monetary contributions to a savings account up to a certain amount.
- Encourage your child to build an emergency fund. If they’re living at home, your adult child will be able to save some money on rent and groceries. Even if they contribute to the household (which is a great idea!), it will likely be less costly than if they had to pay market rates. Suggest that they use these savings to create an emergency fund. This can help your young adult avoid needing money to be bailed out again in the future and allow them to build financial security to weather tough economic times. If your child has a disability, look into opening an ABLE account where they can save for their future.
- Help them make a budget. If your child hasn’t learned basic budgeting skills, help them create one. From a simple spreadsheet to using an app, you can help your young adult learn to track expenses and income. Ultimately, the goal is to limit spending and make sure that savings are set aside each month.
- Consider a loan instead of a gift. You may want to pay for your child’s college tuition, invest money in their new business or fund their down payment for a home. Consider offering to contribute to a portion of these financial needs instead of making a complete gift. Or offer to pay your child’s college tuition as a loan that can be paid back with no interest or a low-interest rate in 20 years. This way, your young adult has the opportunity to practice financial responsibility and debt management without being on the hook for an expensive bank loan.
- Be honest about your own situation. Volatility and inflation affect everyone. Don’t be afraid to share this information with your young adult child. If you need to budget money more strictly, share that. If your young adult child lives with you, suggest ways they can financially contribute to the household. For example, you might say, “I’ll be packing lunches and taking coffee to work rather than buying. Perhaps you could help pay for X item in our household budget.” Sharing the responsibility can help your young adult child grow their financial literacy and be more invested in your household.
Before taking any of these steps, it’s a good idea to speak with a CERTIFIED FINANCIAL PLANNER™ professional to help you navigate finances with your adult child. Find your CFP® professional today.