When should you stop paying for your kids?

Helping your kids is a basic instinct for a parent. Protecting your children is in your DNA and can be pretty rewarding. However, supporting your children for too long may create challenges for you and them. Some parents help their kids well into their mid-thirties, and this constant financial backing prevents children from becoming responsible adults and can impact your retirement. So, when is it time to stop?

Every situation is unique, and every person is different. There are life situations when helping out your child financially makes sense. Some parents pay for their children’s health insurance or phone bill for quite some time. As a parent, you want your kids to be responsible adults, so communication with your children about money is crucial. You will need to devise a plan to reduce your child’s financial dependence gradually. For instance, you can stop paying a phone bill one month, then help them with a plan to take over health insurance costs.

Create a strategy that will help you step by step put your child on the path of independence. Communication is the key here! Get your child’s input and set clear expectations they can commit to. For instance, according to your strategy, your child may need to start paying their own rent in six months. It’s crucial that your child understands what’s expected of them and starts managing their money correctly. Offer your help to determine where money is going and how to decrease spending or increase earnings to cover the rent moving forward. All these little steps will sufficiently help your child to be an independent and responsible adult.

If you’re afraid you may be headed in the wrong direction with your child’s money patterns or just want to be proactive, here are some tips to help you move from financially supporting your kids to enabling them to become independent:

Teach your children the value of working for a living.

Work is an essential part of life, and your job as a parent is to explain the value of working hard to your kids. However, the value of work is not always evident to them. So it would be helpful if you created an environment where your kids could learn from you about the importance of work. In addition, since most people spend 40 hours or more at work, you want it to be the best experience for your children.

Remember that your children will always follow your example, so try to show them that work can be rewarding and bring joy to them. Explaining and focusing on the benefits and value a job brings to a person is crucial to help them see the big picture. It’s not only about money; a job can give much more. It all depends on your values and what’s important to you. Show your children that a job can give a sense of purpose, access to a community, the ability to interact with various people, intellectual challenges, and more. The way to guide your child is to show them by your own example and tell them what your work values are. It may be a sense of purpose the job gives you, or feeling of belonging, or the ability to learn new skills. Make sure you share it with your children; it may inspire them to search for more than a paycheck in the workplace.

Talk to your kids about financial literacy and money management.

Financial literacy is the ability to understand and apply financial skills. In today’s world, being financially educated is essential. Nowadays, people have to manage various mortgage accounts, retirement, credit scores, etc. Lack of financial education can affect your children’s life in multiple ways. Did you know discussing finances can cause anxiety for a lot of individuals? So many people are scared even to face their financial situation in a conversation, let alone in their daily lives. 

Unfortunately, most schools don’t provide financial literacy classes. So the money management knowledge most kids are getting is only from their parents. It happens either by example, coaching, or experience. Just being there and leading by example is highly impactful. Financial literacy, budgeting, and money management lessons can positively affect their future.

Being financially literate will improve life in many ways, and that’s a skill you want your children to have. It will help them understand their earning and spending habits, how to pay off debt, avoid poor debt decisions, saving money and investing.

Tracking spending is an integral part of money management. Your children must know how much money they spend monthly and how it impacts their cash flow. Fortunately, there are plenty of budgeting tools that can help get more control over spending habits. They are easy to set up on a phone app and always keep a pulse on their finances.

Another essential thing to talk to your children about is how to start an emergency fund. People in their 20s or 30s may not think about the importance of this fund. Still, it’s better to be prepared financially for unexpected situations, such as unemployment, unanticipated medical expenses, home or car repairs, etc. Setting aside at least six months’ worth of living expenses is a good goal for a  safety net. It will feel good knowing your children have a safety cushion when they need it. Try to teach them to treat their savings as non-negotiable expenses to stay financially secure

Many young adults also don’t understand the importance of a good credit score. As a parent, you must ensure your children understand the benefits of working on and maintaining their credit. Nowadays, you need good credit everywhere – from renting an apartment to getting hired. If your child doesn’t have good credit, they may miss out on an attractive mortgage rate, better terms of credit limit, and even a dream job. Yes, some employers may check your credit report before hiring. So, young adults should start building their credit early and have to know how to keep focused on it for their entire life.

Help your kids understand investing basics and types of investment.

When it comes to savings and investing, young adults don’t give it too much thought. In fact, most of them don’t think about it at all. The majority of parents don’t talk to their kids about investing either. When children are young, the most valuable asset they’ve got on their side is time. If they start putting aside money early, it will make a massive difference in their future. With time on their side, the money they started saving in their twenties will open more opportunities for them in the future, especially if they don’t just save it aside but invest it. 

When it comes to investing, it’s essome companies match the contributions up to 3-5% of their inential your children know the basics. Start by explaining different investment account types, such as 401(k), IRA, Roth IRA, etc. Let’s look at some of them:

401(k) – employer matching contributions in the retirement plan. If your child found a job with a company that offers to match contributions, they should definitely utilize this opportunity – it’s free money. Advise them to get together with their human resources department to learn more about maximizing their contributions. Scome.

• Roth IRA –  IRA is a retirement account they can open on their own, and the employer is not involved. The main benefit is that the savings will grow tax-free! So, when your child turns 59.5, they can withdraw the money from the account and pay taxes at a lower income bracket. There are limitations on how much can be contributed annually, but remember that it will grow over time. And with your children being in their 20s or 30s, it’s an excellent opportunity to use this method to save for retirement. 
• Traditional IRA. Contributions are made on a pre-tax basis, and taxes will be taken once the money is withdrawn. It’s a good opportunity to save on taxes and pay them later. Important to note that if your child withdraws money before retirement age, some penalty may apply.

Nowadays, there are more possibilities than ever to grow wealth through investing. Learning that the options are limitless may be simultaneously daunting and exciting. Parents may not be quite familiar with investing topics, so it may be a good idea to involve a professional. Hiring an investment firm can be an excellent solution for parents and their kids. The team of professionals can select assets for investments that are right for your child’s needs. They will help create a strategy that aligns with your child’s goals and help grow wealth over time. Investing may sound intimidating for newbies, but a professional’s guidance can ensure your children’s safe and secure financial future. 

Of course, every parent cares about their children, despite their age. They can be in their 20s or 30s or even older, but for a parent, they always will want to help and support. However, supporting kids for too long can be harmful for you as well. You need to remember that one day you will retire and you will need to have some savings to support yourself. That’s why it’s important to raise your kids independent and financially literate. 

If you or your child needs help crafting a retirement plan, we are here to help. Take the next step, and talk to a team of retirement planners who put your interests first, Schedule a call today!