Equip Your Adult Childen to Become Financially Independent

Author Mei Lin Kroll - Certified Financial Counselor with LSS Financial Counseling.

As a financial counselor, I often hear, “Finances were never taught to me,” or “Why don’t they teach finances in school?” Because not every school teaches these necessary skills, it’s important to equip your child to become financially independent before they enter the real world.

When personal finances are not in order, it can cause havoc in all parts of our lives. To have a long and healthy life, we need a balanced diet and exercise. Managing finances is another component of good health. If our adult children aren’t proactive about money matters, they end up spending too much time repairing their finances – and that can be quite stressful.

Becoming financially fit takes time and effort. However, if you help your child establish healthy habits from the start, they will achieve that fitness and become a financially independent adult. Here are eight strategies to share with your child.

1.   Create a realistic budget – the foundation of finances.

I talk with ALL my clients about creating a budget because it applies to EVERYONE. A realistic, balanced budget will help your child avoid overspending and reach their financial goals. A realistic, balanced budget will help your child avoid overspending and reach their financial goals.

• Budgeting makes your child aware of how much money is going in and out of their account each month.
• Your children should account for every penny spent. Encourage them to review necessary and non-essential expenses, both monthly and periodic, and include them all in the budget. It’s very common to not realize how much is spent on non-essentials such as entertainment, dining out, hobbies, travel, gifts, etc. Necessities are expenses like mortgage/rent, utilities, insurance, fuel for vehicles and groceries. Don’t forget about annual vehicle tab renewals, vehicle maintenance, annual veterinary appointments for Fido and other periodic costs throughout the year.
• Your child’s budget will indicate what their financial options are. Once they’ve tallied all expenses, is there is money left over? If so, they should first think about priorities such as savings (see #2 below), payments on debts, home projects, appliances that need replacing, future plans like higher education or a wedding (see #8 below) and periodic expenses. Non-necessities should come after they take care of priorities.
• If there is a deficit, your child should determine if they can secure additional income and/or reduce expenses.

2. Save for emergencies and retirement.

Savings is crucial to help avoid overspending and getting into debt. Encourage your child to make savings a priority in their budget.

• If they have money left over after paying for necessities, they should put that extra cash into a separate savings account. Every little bit helps, even if it’s $5-10.
• A good savings goal is creating an emergency fund that covers three to six months’ worth of expenses. Life happens, whether it’s an income reduction, job loss, injury or other unpredictable event.
• Invest money when possible for retirement. Your child should take advantage of any retirement plan offered by their employer (e.g., 401k, 403b) and any match the employer offers with that plan. They can start a traditional or Roth Individual Retirement Account (IRA), a money market account or whatever financial tool they feel most comfortable investing in. (**Note: this is not intended as investing advice. Consult with a certified financial planner for support on creating your own retirement plan.)

​​​​3. Live within your means. Control spending and stick to the monthly budget.

• Is your child an impulse buyer? Do they get sucked into “sales” and “specials” and “limited edition” offers? Encourage them to avoid making a purchase just because it’s a “good deal.”
• They should not charge purchases on a credit card when they don’t have the cash.
• When deciding whether to make a purchase, your child should first determine if it meets a need. If not, they should think about their financial goals (see #8 for examples). Does this purchase make it easier or more difficult for them to achieve those goals? If it makes it more difficult, they should not buy it!

​​​​​​​​​​​​​​4. Avoid credit card debt.

• It’s not always feasible to avoid debt completely, i.e., student loans, car loans or mortgages. However, your child should avoid debt whenever possible, especially credit cards.
• Teach your child not to buy something with a credit card unless they have the cash to pay it off in full immediately or before the interest is charged.
• Credit cards should not be used as a safety net; that’s what emergency savings are for.
• Your child needs to think about credit cards as another monthly payment. If they accrue new debt, it will create another monthly item in their budget. If they add on more to existing credit card debt, that monthly payment will increase. Can their budget afford that?

​​​​​​​​​​​​​​5. Create and maintain healthy credit.

• Instill in your child the practice of always paying bills on time — no “IFs, ANDs or BUTs” about it! Payment history — whether payments are on-time or late — makes up 35 percent of credit scores, the largest component of that score.
• To establish or maintain good credit, your child can charge items that they can pay off in full immediately (i.e., streaming services, gas, coffee, groceries, etc.). That shows they are credit worthy by borrowing money and paying it back on time.
• If your child uses credit cards, they should only charge up to 30 percent of their credit limit. With that said, reiterate to your child that it’s important to avoid accruing debt whenever possible and only charge what they can afford to pay off right away.

6. Monitor credit reports.

• Your child can review credit reports for FREE once per year from all three credit bureaus (Transunion, Experian and Equifax) at www.annualcreditreport.com
• They should make sure everything reported is accurate and dispute any errors.
• Unfortunately, identity theft is all too common these days. By reviewing their credit report regularly, your child will be able to see any red flags identity theft.

​​​​​​​7. Be a smart consumer.

• Encourage your child to clip coupons, check the grocery store’s weekly specials, and keep an eye on future promotions/deals on essential items.
• If they’re looking for something specific, such as a winter coat, suggest that they purchase the item in the off-season when it’s on sale.
• Is your child in the market for a large purchase? If so, tell them that it’s best to save up for it. If they’re in a pinch and need to replace that old refrigerator or other appliance, watch for and take advantage of 0% financing. As long as the monthly payment is affordable and they pay it off before the 0% interest deal ends, this can be a great way for your child to get what they need without additional charges.

8. Think about your goals and how you will finance them.

• Do they have student loans or other debt, and if so, how much? Ask them if they have a plan to pay it off.
• Are they planning on going back to school? If so, ask them how they will pay for it. Will they receive any financial support from family/friends? Will they receive scholarships, grants or loans? Can your child rent out a room? Will they have internships that help pay for tuition? If your adult child is taking out loans, encourage them to take out the minimum amount. If possible, your child should also find an additional income source besides loans — e.g., working — to afford monthly and periodic expenses while in school.
• Do they want to get married, buy a home and/or have children? They’ll need to think about all the associated costs and prepare for them. For instance, to buy a home, it’s preferable to make a 20 percent down payment, so it’s crucial that they start saving early

If you or your adult child would like assistance with student loan repayment, creating a budget and/or determining the fastest way to pay off debt to achieve financial goals, LSS Financial Counseling can help. For additional resources, or for information about scheduling an appointment, go to www.lssmn.org/financialcounseling/topline or call 888.577.2227,

LSS Financial Counseling has been guiding individuals and families for more than 30 years as they take control of their finances.

As a TopLine Financial Credit Union member, you and your family have access to six (6) FREE private and confidential financial education counseling sessions annually with a certified consumer credit counselor from LSS Financial Counseling. Sessions are available by phone, in-person or online.​​​​​​​