How to Instill Financial Independence In Your Adult Children

Key Takeaways:

• Financial independence is a gradual process and there is no one-size-fits-all approach.
• Ensure that your children are aware of financial concepts, so they are equipped to manage their finances on their own.
• By using your own history with finances and creating an interactive experience, your help and guidance can make this process easier.

If you're still providing financial support to adult children who are well past their 18th birthday, it can be difficult to judge when to cut the financial cord — or how to do so in the first place. Achieving financial independence is a major milestone in life, but there are no set rules for when this stage is reached. Each family will have their own journey and unique circumstances.

It's not easy to strike a balance between loving your children by supporting them and loving them by helping them learn to be self-sufficient. This might especially be the case if your adult kids face real world challenges like unemployment, student loan debt, high living costs and stagnant wage growth. Such economic realities have led many children ages 18 and up to live at home or depend on their parents for financial support. It's important to know that you can still be Mom and Dad while also urging an adult child to take on responsibility for their own financial life. To help, here are some strategies for finally cutting the cord and setting your adult children on a path to sustainable financial independence.

Be Upfront and Honest About Expectations

Oftentimes, cutting the financial cord is not done in one fell swoop. In fact, it's ideal to make financial independence a gradual process — which is more akin to a methodical fraying of the financial cord. This way, you can prepare your adult children for the financial realities and responsibilities they will bear, while still setting them up for success. 

If you haven't already had an open and honest conversation on when to cut the cord, now is as good a time as ever. You may take this time to explain that you'll be phasing out your financial support, transferring certain tasks to your child or taking some other type of action. For example, you might explain that you'll be paying less and less of their rent until a predetermined time when they shoulder the full cost. Alternatively, you might ask them to handle the bill for their phone and data, or to pay rent while living at home. Whatever course of action you take, just be sure to talk with your adult kids about what you expect and what they can do.

Cover the Basics

To make smart financial decisions for themselves, adult kids need financial education and knowledge of basic financial concepts. You can't take such comprehension for granted, especially if your child has relied on you entirely to handle bills or rent.

To lay the groundwork for a smooth transition into financial adulthood, ensure that your kids have a working understanding of:

• Personal checking accounts.
• Savings and how interest is accrued.
• Loans, interest rates and repayment terms.
• Credit cards.
• 401(k) accounts and how to save for retirement.
• Mortgages, down payments, home equity and refinances.
• Insurance (e.g., home/renters, auto, life).
• Various low-risk investments, like certificates of deposit (CDs) and bonds.

This isn't an exhaustive list of what to cover, but it's a great starting point for you and your adult child.

Make it a Cooperative, Interactive Experience

To truly make your financial lessons stick, consider a shared experience or activity, like opening a bank account together or applying for credit cards. It can be intimidating for your adult child to assume financial responsibility when they haven't been forced to do so before. Your help and guidance can make this process easier. For example, you could accompany your child on a visit to a local bank branch. Having Mom or Dad by their side can be a big advantage. You can talk to a representative together and open up a bank account and accomplish other tasks, like ordering checks, enrolling in automatic bill pay or using remote deposit through a banking app. This first-hand experience will be crucial in readying you and your child to cut the cord.

Open Up About Your Financial Life

Many parents find it difficult to talk about finances with their adult children. After all, these are not easy discussions by any measure — yet they are necessary. Using your own life as an example can help your child better understand what financial independence means, and what journey is ahead for them. Consider talking to them about your first homebuying experience or how you currently manage your mortgage payments. Also, be open with them about what financial challenges you face today. Your child may not have previously understood your retirement savings plan and how continued financial support for them may keep you from reaching those goals.

Create Concrete Goals and Timelines

Financial independence is a broad, often abstract concept that can be difficult to strive for. However, working with adult children to set clear goals can help promote a gradual transition to the point that they feel comfortable going off on their own. Keep in mind that you'll need to be realistic here. Telling an adult child that you will cut them off in a month if they are not ready to live on their own will only create tension. Whereas sitting down and discussing goals for spending and saving will make the eventual cord cutting that much easier.

For example, you can go through the entire process of goal-setting (like a reduction in spending). You might walk through inflows and outflows together, then draw up a budget and teach your child how to track their spending before being fully responsible on their own. That gives your child time to manage personal finances in light of the goal and also creates a financial foundation to living independently when the goal has been reached.

Reach Out to Comerica Wealth Management

There is no one-size-fits-all approach for instilling financial independence in your adult children. Each family has their own set of unique circumstances and experiences that shape discussions like these. However, knowing when to cut the cord is essential for your own financial well-being, as well as that of your adult children. Using these tips and strategies that we've discussed can help make that process more simple and more effective.

If you are starting down this path with your children, leaning on your financial partners can help. For example, Comerica Bank offers robust online and mobile banking solutions alongside specialty checking accounts that if held jointly can give you full visibility into your financial life. Using these tools and giving your adult children insights into how they help you could have a positive influence on their financial future.

If your children's financial future includes inheriting wealth, you may want engage with your professional wealth partners to begin conversations now. It's never too early to communicate and start planning for the future. 

Contact Comerica Wealth Management today for guidance, we are happy to help. If you would like to stay informed about financial independence strategies and transitional wealth, subscribe today to receive relevant and timely insights and commentaries from Comerica.