6 practical ways to encourage financial independence
Supporting adult kids financially can be as small as paying for groceries, gas or cell phone bills – or as big as helping them out with a down payment on a home. While it’s natural for parents to want to help their children, it’s important to make sure kids don’t rely solely on the “Bank of Mom and Dad” and miss out on valuable life lessons.
Just as importantly, providing financial support could jeopardize your own financial goals.
Cutting the money cord can be difficult, but here are a few guidelines to help start your kids off on the path to financial self-sufficiency.
If your children are living with you, begin by setting expectations around when they will start paying for their own expenses like cell phone bills or car expenses. Remind them that it’s not that you don’t love or care for their wellbeing, but rather you want to set them up with good financial habits to provide for themselves.
Create a timeline
Prepare your kids by giving them a reasonable timeline to organize their finances and emotionally prepare to fully support themselves. No matter how much financial assistance you’re giving your child, you’ll want to give them enough lead time to adjust to living without this support. If it’s just a few hundred dollars a month, a couple of months should suffice, but if you’re supporting them entirely, you’ll need to allow much more time to help them stand on their own two feet. Choosing a date and sticking to it makes it easier for everyone to follow through.
Establish a budget
Many people have no idea what their monthly expenses are – your kids are likely unaware what they earn and what they spend. Once you’ve helped them create a budget, you’ll be able to see what gaps exist, where they still rely on you and how you can help them reduce spending and increase savings. Be sure to review their budget together frequently in the first six months. There are many free apps and websites that can help your children budget and track expenses – talk to us for suggestions.
Encourage early investing
Saving earlier can help your adult children benefit from the power of compounding on their savings. Even small amounts invested regularly, whether through an RRSP or a TFSA can make a significant difference in their savings down the road. Starting to invest at a young age also helps your adult kids get into the responsible habit of saving and setting aside money for their future.
Help your kids get set up to file taxes
For young adults who are filing taxes for the first time, the prospect can be daunting. The good news? At this stage in their life they are unlikely to have complex financial circumstances. There are also a host of simple, intuitive websites to help them work through the process, including taxtips.ca, turbotax.tax-basics and Canada.ca.
Model good financial habits
Share how you learned to make financial decisions in your early years, and how you’ve learned from past choices. Let them know that if they stumble, it’s okay – it’s more important to focus on what they can control by creating an achievable action plan.
Is your retirement plan on track? Talk to us to make sure supporting your adult children isn’t significantly impacting your financial future.