Cutting the Financial Cord
Now, more than ever, adult children are relying on their parents for financial assistance. While economic uncertainty and a competitive job market have hindered the financial maturity of many post-collegiate kids, it may be in everyone’s best interest to help them leave the nest—monetarily speaking, at least. The following tips can help you cut the financial cord gracefully.
Timing Is Everything
Like any major change, your child’s financial independence probably won’t happen overnight. Require your son or daughter to take on more financial independence gradually, and think of what expenses (such as cell phone payments or health insurance costs) are most important for you to hand off in the short term. If you time financial responsibilities to coincide with other life changes for your child (like a new job with better pay, or the end of a three-year car loan), they’ll likely be received with more enthusiasm and success.
Stick to the Deadlines
When you broach the topic of financial independence, it’s important to have a deadline in mind. If you tell your child that, come March 1, they’ll be responsible for paying their own rent and car insurance, it’s important not to waffle. The only way to make an effective change is to let them know you’re serious. Decide on a date in advance, and stick to it.
Take Emotion Out of the Equation
Guilt may be the most important factor driving parents to dole out cash to their kids. Keep in mind, though, that financial independence is in your child’s best interests. If you take a business approach to your finances, it will be much easier for both you and your kids to consider the Bank of Mom & Dad permanently closed.
…But Not Out of the Situation
It’s important to let your children know that the cash flow is the only thing being cut off, and that you’ll always be there for them. In fact, you can be there for them financially without doling out the dollars by helping them create a realistic budget, look for a great apartment or write a winning resume. Cutting the financial cord doesn’t have to throw a wrench in your relationship—use it to create new ways to bond with your children, as you help them mature and grow up to be financially independent.
Tell Them Why
When you’re choosing to withhold the handouts, don’t be shy about sharing your reasons. Explaining that you need to save for retirement, pay off the family house, or reduce your own credit card balances will help your child understand why it’s important for them to take the financial reins. It may also be a good opportunity to segue into discussing your child’s long-term financial goals. When your child sees that their financial independence can benefit the entire family, he or she may be more apt to embrace the change.
Encourage Them to Make a Plan
Ask your children where they see themselves in five years. How about 10? One of the risks of providing adult children with financial support is that they may not feel a need to think long and hard about the future. By articulating priorities and envisioning future goals, your child may become more motivated to take responsibility.
It’s Never Too Late to Change
If you’ve been supporting an adult child for years, it may seem impossible to make a change now. However, if you make a detailed plan and discuss it with your child in advance, you’ll be surprised at how effective the results can be. While it’s always better to start teaching children about financial responsibility early, it’s never too late. By encouraging independence, you’re creating a better financial future for yourself—and for your child.
by Chris Cooper, CFP®