Weaning young adults off the bank of Mum and Dad
Helping young adults become financially independent may benefit both them and their parents.
The bank of Mum and Dad has become an important source of funding for young Australians. Research has found that mums and dads are even helping their children to finance business startups.
While it’s natural for parents to want to help their kids, it may not be viable for the long term, and children will eventually need to be self-reliant. So how can parents help young adults become financially independent?
Teaching them about money
Teaching financial responsibility is one of the biggest lessons parents can give their kids. Children may find the journey to independence easier if they understand the importance of using money wisely. You can begin by showing them how you use a budget and work with a financial adviser to help you prioritise and manage your finances and set goals.
Helping them save and set goals
Getting your children to save is not only a step towards financial independence – it may also teach them about the benefits of building a nest egg. Consider talking to them about how savings can grow over time through the magic of compound interest.
Driving home the importance of setting financial goals may encourage younger children to work hard and save money to achieve their aspirations.
For many young adults, perhaps the first goal is buying a car, but also talk to them about longer-term goals such as buying a house and contributing to a superannuation fund.
Being a positive influence
Children usually learn the concept of managing their money from their parents, so it’s crucial to be a positive role model. Having good financial habits may help parents ensure their kids develop a positive money mindset.
Withdrawing support When it comes time for young adults to manage their own financial affairs, start by weaning them off parental support.
If you don’t want to immediately cut them off, experts suggest giving them an allowance instead of paying their bills directly, so they can learn to budget and get used to the responsibility of managing their expenses. It’s important for parents to consider the consequences of sacrificing their financial wellbeing to support their adult children. While it’s inevitable that parents will need to provide a lifeline for their kids every now and then, it’s prudent to avoid doing it at the expense of their own retirement prospects and financial welfare.