“Give a man a fish, and you feed him for a day. Teach a man to fish, and you feed him for a lifetime." – Chinese proverb
The same principle applies with your kids and money.
By teaching your kids how to manage their money, you're preparing them to be self-sufficient when it comes to their finances. This means they won't be running to the bank of mom and dad whenever they're strapped for cash.
A recent survey found that 76% of parents with a child 18 years or older still living at home are willing to pay an average of $24,000 to help their kids move out, get married or move in with a partner. While giving your child a substantial monetary gift is great, helping them understand how to manage the money they've been given is arguably more valuable than the money itself. This is because one of the top money issues that Millennials face is difficulty managing a budget. Giving your child a large sum of money that they don't know how to manage only sets them up for failure.
Although 69% of Millennials surveyed believe they're knowledgeable about finances, only 24% demonstrated basic understanding of how to manage their money. The challenge for many people in their 20s is that they're experiencing so many “firsts:" first full-time job, first apartment, first car. This is also a time when they may be thinking about saving for a wedding, a house and all the expenses associated with starting a family of their own. Pair all of that with repaying any student debt and managing day-to-day expenses, and it can be a challenge figuring out where to start when it comes to money management.
Here are a few tips on what you can do as a parent to help your children become financially independent:
Do they plan to move out? Talking about this with your child will help you determine if they want to move out short term or long term and allows you to share your expectations on the subject. This discussion will help set a target date to work towards.
What are their career aspirations? Whether your child is coming back from university or just getting out of high school, having this conversation directs their thoughts towards their future. As a parent you can help your child put together a resume and set a goal for where to apply for work with a long term view in mind.
The purpose of setting goals and having a plan is getting your child thinking about the future and setting the framework for the increased financial responsibility that comes with being an adult.
Having your child map out their current finances will help provide them with a clearer picture of their money situation. Creating a budget is a great place to start. This will give them a view into their cash flow so they can determine how much money they're able to save towards their various goals. In addition they should review their current debt situation (student loans, car loans, credit cards) to see exactly what they owe and what they should be paying down first.
Will they pay rent? Having your adult child pay something in terms of rent is a great start. This will help prepare them for the “real world" financially. When they move out they will have rent or mortgage payments and by introducing this in some way you can help them save properly to cover this expense.
Covering their own expenses: Having your child pay for their own personal expenses helps build responsible financial behaviour. Paying for their mobile phone, car payment, car insurance, etc. will force them to budget properly in order to afford everyday life expenses.
Chores to offset parents paying for utilities and food: Most parents will end up paying for utilities and food while their child remains at home. Having your child help out around the house by making a meal per week or cleaning certain areas of the home will help provide some value to these costs. It will also prepare your child for life on their own and maintaining their future home.
Setting up a meeting with a financial advisor is an essential next step. Your child will have the opportunity to set financial goals and begin a savings plan through their current budget. They can begin to save for moving out, emergencies, retirement, etc. Beginning a savings plan will have them feel in control of their financial situation. If they have debt, a financial advisor can help create a plan to pay it off so it doesn't become a burden.
Having open discussions about how they are doing with their plan keeps the focus on their goals. Encouraging them by pointing out the positive achievements through their savings plan will keep them going in the right direction.
Looking for more tips on how to help your kids achieve financial independence? Talk to one of our financial advisors today.