Launching Adult Children Financially: A Parents’ Guide

As you plan for your retirement, you want the peace of mind that your adult offspring have a realistic long-term financial plan in place so that you can retire when and how you want to. We discuss with Jere Smith, founder of Northern Way Wealth Management, based in Wausau, Wisc., how to help our children build a strong foundation.

Light: According to Pew Research based on U.S. Census data, about one in three U.S. adults ages 18-34 live in their parents’ homes. How can you set your adult children on a path to financial independence without the need to fund them through adulthood?

Jere Smith: A good place to start is by providing guidance, instilling valuable habits and sharing a commitment to their long-term success.

Light: What are some effective strategies and considerations for assisting your adult children in their financial journey?

Smith: The key is to promote independence while offering support. It's essential to balance providing support and allowing your adult children to learn from their experiences. Encourage them to make their financial decisions while being available as a resource for guidance and advice when needed. You can help them understand the value of living within their means and making conscious financial choices.

Light: What about helping them to create a financial plan?

Smith: Yes, it’s a good idea to work with your adult children to develop a comprehensive plan that outlines their financial goals, timelines and the strategies for achieving them. Help them create a budget and a system to track their expenses. As part of the process, emphasize the significance of saving and assist your adult children in setting realistic savings goals. The goal should be to transition them to cover their expenses, such as rent, utilities and insurance, to instill financial independence.

Light: What about financial tools and resources?

Smith: Yew, adult children need to know about budgeting, saving and responsible spending. By introducing them to personal finance resources like apps, online budgeting tools and financial calculators, you can empower them to make informed decisions and manage their financial lives effectively. Websites and online articles such as 8 Financial Tips For Young Adults are a great way to spark an interest in financial planning. On a more personal level, discuss topics like credit, investments and financial goals, and make sure they understand the value of long-term planning.

Light: What about understanding credit?

Smith: Credit can positively impact their ability to secure loans, rent apartments and even find employment. You can guide your adult children in establishing good credit by encouraging responsible credit card usage and timely bill payments and educate them on the value of maintaining a good credit history.

Conversely, ensure they understand how debt can negatively impact financial independence. Educate your adult children about the various types of debt, such as student loans and credit card debt, and the importance of managing them responsibly. Take it further and teach them strategies for minimizing debt, such as paying more than the minimum amount due and prioritizing higher-interest debts first.

Light: What are some next steps toward financial independence?

Smith : Discuss with your adult children how long-term financial planning can benefit them as they embark on their journey of financial independence as an adult. Familiarize them with financial planning concepts, retirement savings, insurance coverage, and estate planning. Encourage them to consult with financial planning professionals to ensure their plan aligns with their goals and aspirations.

Light: What about savings?

Smith: Support their savings goals and encourage them to build an emergency fund to cover unexpected expenses and pay off outstanding debts. You can also discuss the benefits of starting early and the opportunities for making regular, automated contributions to long-term savings accounts and guide them on different savings vehicles, such as individual retirement accounts or 401(k)s.

Light: How do you talk about investments?

Smith: Introduce your adult children to investing if you still need to by explaining the basics of stocks, bonds and other investment vehicles. Talk to them about starting to invest early and emphasize the power of compounding over time. You can even help them set up investment accounts and guide them toward investment options that align with their risk tolerance and goals.

Light: How can you help with bigger financial decisions like purchasing a home?

Smith: As parents, you can offer guidance on those major financial decisions as your adult children face significant financial milestones, such as purchasing a home or starting a business. Sharing your experiences and insights can help them understand the implications of their decisions. Advise them to seek professional advice when necessary, such as consulting a financial planner or accountant.

Light: Any final thoughts?

Smith: By launching your adult children financially before you retire, you can empower them to build a solid financial foundation for their future. The goal is to equip them with the skills and knowledge they need to thrive while providing you the freedom to focus on enjoying your retirement.

By Larry Light, Senior Contributor