14 Jun 6 ways to reduce your child’s financial dependence
As a few of our readers might be experiencing, many Gen Y’s are staying at home longer and their baby boomer and Gen X parents are having to pay for it.
It’s no surprise, really. Facing challenging earning environments, an impossible housing market and with an unemployment rate of 12.28% it’s no wonder today’s young adults are struggling to get moving and stable with their personal and professional lives. So what do they do? Stay at home with mum and dad and delay major life events like buying a house.
A lot of the time this makes financial sense – as long as the child is contributing and paying their own way. However many parents are sympathetic to the needs of their children and continue to provide financial handouts. Whilst this seems helpful it can be quite damaging long term, inhibiting self-sufficiency and understanding of money so it’s necessary to have a plan in place to help your children.
Consider the following 6 tips to reduce the dependence cycle and ensure your children learn important lessons about money:
1. Be clear about how much financial assistance you’ll provide. It’s important to set a limit on why you’re giving money, to what you are giving money and how much money you’re giving.
Being a human ATM for your children increases poor spending decisions and doesn’t teach money management. Work with your children to establish a budget by reviewing essential living expenses and debts. Then, determine a reasonable amount for support and be ready to say “no” if they ask for more.
2. Schedule monthly reviews. Use this time to review the newly established budget and your child’s financial progress. Not only do regular money meetings keep your child accountable, but they can also be motivational, especially if they realise the gains made toward reducing expenses or paying debt.
The reviews are also good times to ensure your money is being used wisely. Over time,the plan is to gradually reduce your contributions so you can get your child to financial independence.
3. Set goals and match savings. Learning how to establish short- and long-term savings goals is crucial to your child’s financial future. Help your children outline these goals, like buying a car or saving for a deposit, along with the steps needed to reach these objectives. If you want to help your children with setting goals check out our how-to guide here.
Incentivise your child to stick with the plan by offering a savings match — like the government’s super co-contribution match — upon reaching a specific goal or milestone.
4. Loan money like the big boys. If you’re planning on loaning your child money, make it official with a written agreement, complete with interest. The interest doesn’t have to be big, but it is an important lesson to learn – ain’t nothin’ for free in this world. Outline a repayment plan along with a deadline so your child knows to take your money seriously and so that they can learn what it’s like to owe money to the bank and the responsibilities that come with that.
5. Charge rent if your child is living at home. It astounds me how many parents don’t do this! Again, it doesn’t have to be big, just the action of having to budget their money to ensure obligations are met is crucial to understanding and valuing money.
There are two angles you might take from here: use the rent to offset your household expenses (my guess is that the kids still eat at home and use the washing machine?), or you might like to put the money away into a high-interest savings account and when you child moves out you can provide them with a little nest-egg to get started.
6. Teach smart tracking. After years of scraping by and eating 2-minute noodles, many Gen Y’s fall into the trap of living big as they begin earning steady income. This can be alleviated by helping them find and install apps that will help them track their spending habits to understand where they can improve and risk versus reward. Check out this list to help get you started with budgeting, spending tracking and more
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