Generation "Y": The Road To Financial Independence As Mom And Dad Let Go
Last month's article was intended to facilitate parents who are trying to help their young adult children establish a solid financial foundation and achieve at least a fair chance at reaching financial independence in these most difficult economic times. The focus of this was to guide parents in how they help their children to establish this sound financial foothold as early as possible. The intent was a very basic "forewarned is forearmed" approach, which in turn would make the tough economic choices facing everyone today a bit easier.
However, it is often a challenge for parents to help recent college grads embrace adulthood from a financial perspective. One common trait of baby-boomer parents is that we are known for mollycoddling our children even after they are out on their own. We continue to hang on by constantly inquiring about their jobs, their finances, their future plans, and even their choice of living arrangements. Of course we mean well, but we are setting ourselves and them up for some possible pitfalls along the way. We can certainly remain concerned and caring parents while at the same time giving them room to breathe.
In an article in the Kiplinger magazine from September 2010, "A Four Step Guide to Your Twenties", by Stacy Rapacon, the 29 year old author describes her view of important steps to take to grow up and "achieve financial glory." What I like most about this brief article is that it presents her perspective as to what minimum efforts are needed to solidify your financial footing from your late twenties forward. My article from last month gave a parent's perspective on the necessities our children must acquire to ensure the wellbeing of their financial futures. This article gives the perspective of a young person as to those necessities, and it is encouraging that the two perspectives are very similar. In other words, there does come a point where the children begin to "get it" and our ability as parents to "back off" from that point will have a great impact on the ultimate success of our children's financial efforts.
There is every probability in this economy that our children will continue to need our help beyond their twenties; maybe well into their thirties. The important element that comes into play in this instance is that we continue to support their needs while, at the same time, we push them to develop their own solutions. As parents we want to ensure the best long term financial outlook for our children. The road to accomplishing this goal is one of continuing to push responsibility their way. For example, as our child starts out with their first job, a new apartment and the associated costs of living on their own, there is a high probability that they will not be able to cover all the costs. Let's assume that we agree to pay their rent for the first year to get them started; this gesture should not go unmet by an effort on their part. For example, we agree to pay their rent if they agree to save 25 per cent of their take home pay each month. At the end of the year, they assume the rental payments, and they have some savings set aside as a backup going forward.
Similarly, we may be able to help with medical insurance coverage. Even if their employer offers medical insurance requiring the payment of a monthly premium, we may be able to continue to carry them under our current family coverage while they have an opportunity to get established and to better budget their monthly income and expense. Again, this is a temporary gesture as the law allows this coverage only until age 26, at which time they will be no longer be eligible to be carried on the family policy. Similar to the situation described concerning our supporting the cost of their monthly rent, we should suggest and expect that they add an amount equal to what their insurance premium would have been to their savings account each month. Again, the purpose of this is to set their focus on the ultimate goal of taking responsibility for all of their financial needs.
Looking toward the ultimate objective of our children being able to handle their own financial futures, we should consider using written agreements or spreadsheets in tandem with our financial support. This provides a much stronger reminder of what their obligations are, as well as a visual perspective as to the progress being made. It almost seems to make them want to "burn the mortgage" as soon as possible, and they step up their efforts toward personal financial security more quickly. Remember, the goal is for our children to ultimately assume their own financial well being. It won't be accomplished with constant assistance from us as parents. Our objective should be to achieve the balance of helping them make it on their own, while still giving some comfort that we are there to help when needed.
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©Patrick J. Catania 2012
The views and opinions expressed herein are solely those of the author and do not necessarily reflect those of Baxter Credit Union, its Board of Directors, or its employees. The author is responsible for the content. Readers should consult with, and seek professional advice from their own attorneys, accountants, and financial advisors with respect to their individual financial needs and circumstances.
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