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Sep 06, 2019

Young Adults and Financial Independence

Helpful guidance for key discussion points with your children.

Lorraine  Walker First Vice President

Lorraine Walker, CFP®

First Vice President

Wintrust Investments

Like most parents of teenagers, I am not only aging in dog years but spending an inordinate amount of time considering their path to adulthood. True independence will mean maturity in many areas of their lives, including a keen grasp of important financial matters.

In many households, discussing money is not encouraged. It is often considered inappropriate or even crass. However, there is a vast difference between announcing the price of your new luxury purchase at the dinner table and having open, honest dialogue about financial responsibility. Before your children take the reins of their financial lives, they should gain an understanding of some key financial concepts—and more importantly—they should develop an appreciation for how important these concepts will be throughout their life.

Saving: A simple online financial calculator will highlight how quickly regular deposits that earn interest will grow to a sizeable nest egg. Involving them in the process of depositing money into their own savings account will help them feel comfortable with the world of banking. Showing them how to access that money, explaining any fees involved and generally familiarizing them with the day-to-day operations around money transfers will equip them with a basic life skill that will serve them well.

The cost of leverage: Credit cards, student loans, car loans, and eventually mortgages will all likely be part of their lives at some point. Understanding the true cost of borrowing is crucial and can help avoid the pitfalls of oppressive debt. Again, an online financial calculator can highlight this lesson very clearly.

Budgeting: This might be the most important piece of the financial education. For young adults, learning to live within their means and to forgo the luxuries previously afforded by their parent’s wealth, is often a very difficult adjustment. Having a summer or weekend job while in high school is an excellent means of developing an appreciation for value of money. Setting expectations on what their paycheck is for (gas, entertainment, college savings, etc.) and what happens when it runs out, might be the best graduation gift you can give your teenager.

Lack of basic knowledge in these area is a contributing factor to the ‘failure to launch’ phenomenon we are witnessing at an alarming rate across the U.S. In fact, a third of young people, or 24 million of those aged 18 to 34, lived under their parents’ roof in 2015. That number is growing with many young adults returning home after college rather than moving into their own home. Psychologists and economists would argue there are many reasons for this. Some believe that helicopter parenting has failed to prepare young people for real life, while still others blame the increasing cost of housing and the crippling cost of college debt. Regardless of the reasons, adult children living at home is not ideal for anyone involved from a fiscal standpoint.

Setting realistic financial expectations with your children from an early age while also setting a good example of fiscal responsibility will go a long way to ensuring that your children do not decide that the nest is just too good to leave.


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