If you have an adult child who's still on the family ticket, you're probably getting tired of kicking in for everything from cell phone bills and health insurance to rent and groceries—and you may be more than a little worried about how your kid's prolonged dependence will affect your own financial plans. (Retirement at 75 instead of 65? Not an appealing picture.) Yet when your child is struggling to make ends meet, what else can a loving parent do but cough up a few bucks (or a few hundred, or a few thousand), as needed?
Plenty, actually. If you're among the many parents providing financial assistance to an adult child—nearly three quarters of people ages 40 to 59 with at least one grown child say they helped to support an adult son or daughter in the past year, the Pew Research Center reports—understand this: A handout is not the only way to ease your offspring's transition to financial adulthood. In fact, in most cases, it's not even the best way, since a bailout doesn't teach Junior how to stand on his own two feet.
Here are six ways you can help your adult kids financially that don't involve withdrawals from the Bank of Mom and Dad.
1. Be their financial BFF.
More than cold, hard cash, millennials need guidance about navigating the adult world of money. After all, they don't teach you how to pick funds for your 401(k) in college or about the best way to set up and stick to a budget. Indeed, a study earlier this year from the FINRA Investor Education Foundation found that only about a quarter of twentysomethings were able to get a passing grade on a basic five-question financial literacy quiz, leading study author Gary Mottola to conclude: "Younger Americans lack the financial knowledge to make well-informed decisions," which leads many of them to "engage in behaviors that are detrimental to their financial health."
Since your child may be reluctant to admit just how little he knows about this stuff—or doesn't know how much he doesn't know—it's up to you to introduce the subject. Best bet: Ask a leading question or two, using your own experience to ease the way into a conversation, rather than telling him what to do or not to do. For instance, you might offer that your company has just changed the choices in your retirement plan and you've had to switch investments, then add, "By the way, have you had a chance to sign up for your 401(k) yet? Need any help with the forms or figuring out which funds to go with?"
2. Share your own money mistakes.
Over the years, chances are you’ve messed up plenty when it comes to managing your money, especially when you were first starting out. What kid, of any age, isn't secretly delighted to hear about a parent's screw-ups? This approach to talking about money makes you seem more, well, approachable, and allows you to introduce a discussion about financial pitfalls and how to recover from them without seeming like you're judging or lecturing. “You don’t want to be a paragon of perfection," says Jayne Pearl, author of Kids and Money: Giving Them the Savvy to Succeed Financially. "You want to create this bond where your children can share their own mistakes and hopefully learn to avoid some of the poor choices you made when you were younger.”
3. Offer practical tools to succeed.
Twentysomethings are creatures of the digital age, and will likely feel comfortable using one or more of the many websites and apps that help users manage their money. Sites like mint.com, youneedabudget.com, budgetracker.com, budgetpulse.com, and learnvest.com all offer financial newbies an easy way to create and stick to a spending plan, manage debit and credit cards, track expenses and bills, and generally become smarter about saving, spending, and borrowing. The mint.com app even includes an alert that signals when the user has gone over a set budget. Maybe you should consider signing up too.
4. Help them lighten their load.
Seven in 10 students who attended four-year colleges graduated with loans outstanding, according to the latest stats from the Project on Student Debt—at public colleges, the average is $25,550, a 25% increase in five years, and at private schools, the average is $32,300, a 15% jump since 2008. Little wonder, then, that so many millennials are struggling financially (46% of them worry about having too much debt, the FINRA study found). One way Mom and Dad can help is to provide information about programs that help lower the monthly bills for college loans, such as income-based repayment plans for federal borrowing. Instead of the standard 10-year payback term, monthly payments under this program are capped at 10% or 15% of the borrower’s discretionary income, depending on when they took out the loans. Although your kid may rack up more interest over a longer payback period, the plans make payments more manageable now and any balance remaining after 20 or 25 years of consecutive payments will be forgiven. If your child is a teacher, works for the federal government or has another public-service job, she may also qualify for loan forgiveness after 10 years. (Get details from the Department of Education here.)
Financially strapped young adults can also benefit from having a credit card to fall back on and occasionally bridge the cash-flow gap from paycheck to paycheck. One gift you can provide is to point them to plastic with training wheels — that is, a card that can help them in a financial pinch without allowing them to get into too much trouble. A good option: Northwest FCU FirstCard. Specifically designed for first-time cardholders, this no-fee card has an ultra-low fixed APR of 10% (most cards are variable rate; recent average rate: 15.7%) and a credit limit of only $1,000 so the cardholder can't get too overextended. Bonus: Applicants are required to take a 10-question quiz about credit, so there's an educational element too. You must be a credit union member to apply, but this only requires a $10 donation to the Financial Awareness Network.
5. Make some introductions.
To get into the field she wants or maybe even to land that first salaried job, your child will need to network. You know people, and your people know people. Help her out by sharing her job search with your friends, coworkers, and clients, who may be able to recommend folks who'd be willing to meet for an informational interview or who will pass along news of appropriate job openings.“The best thing you can do is introduce your child to a professional in their field who can answer her questions, connect her with others, and just talk about the job,” says Jenny Erdmann, who helps direct Money MindEd, a teen financial education program.
6. Share a valuable secret.
When your kid’s pressed for cash, it may seem odd to stress the importance of saving, but do it anyway. Even putting aside a small, say, $25 a week, can get her in the habit of saving and make a big difference down the line. The sooner your child starts saving, the less of her own funds she will need to contribute to meet her financial goals, thanks to the power of compounding earnings on her investments. That's an invaluable lesson to learn at a young age.
The secret to saving, as anyone who's ever signed up for a 401(k) at work knows, is to automate it: Set up a savings plan at work or through a bank or mutual fund company that will automatically shift a set amount of your choosing at regular intervals (say, weekly or monthly) from your paycheck or a checking account into an investment account. Young people can start small, use automated savings plans to build up both an emergency fund and a retirement plan, and then increase the amount every time they get a raise. Studies show that people who do this end up with substantially more money than those who do not automate. "The biggest mistake someone can make is to push things off and wait for years to go by before they think about savings,” says Suze Orman, author of The Money Book for the Young, Fabulous & Broke. “Time is the most important ingredient in the financial freedom recipe."
That's a pretty cool concept for Mom and Dad to pass along.