Blog
01/28/2025
Raising Financially Independent Children
As parents, we all want our children to be successful. For some, this means going to college; for others, pursuing a trade or starting a family. Regardless of our definitions of success, most parents want one common goal for their kids: financial independence.
What Is Financial Independence?
Financial independence means adult children no longer need financial support from their parents or guardians. It doesn’t mean a parent has to cut off their child completely; they can still provide some aid. This means that children should be able to fully support their financial obligations without relying on their parents. While most hope their child achieves this sooner, this doesn’t happen at 18 for most young adults. For some, it may take years or longer after moving out. Why is that?
Barriers to Financial Independence
Young people face more barriers to financial independence than ever. Debt is a massive issue in the United States, often starting with student loans. Today, 70% of college students graduate with significant debt, severely impacting their career plans. Over 44 million Americans hold nearly $1.6 trillion in student debt, meaning roughly one in four adult Americans are paying off these loans.
When young adults graduate from college, the average student loan borrower has $37,850 in loans, which has roughly tripled since 2007. Individuals could have made a down payment on a home, bought a new car, or started a business with that money.
Most young adults rent rooms and apartments, and these costs are rising. The median rent in the United States is $1,645, rising 0.1% month over month, and nearly everything costs more than it did two years ago. Rent costs are rising fastest in expected markets like Seattle and Sacramento and unexpected places as well.
Most Americans have considerable consumer debt, making financial independence seem impossible. The rate of new debt is highest among young adults, with credit card companies targeting vulnerable kids as soon as they turn eighteen. In 2013, the average college student balance was $499, and the median was $136, which is higher today.
Young adults face an uphill battle to become financially independent from their parents. Additionally, many lack the knowledge to create budgets and manage their money. A 2016 survey of 455 college students revealed:
- 58% said they aren’t saving anything.
- 30% said their parents taught them nothing about managing money.
- 51% of students received no financial education in high school.
- 43% of people aren’t tracking their spending.
A 2018 study found similar conclusions. The National Financial Capability Study involved a sample of 3,050 adults, which reviewed and assessed the financial practices and knowledge of U.S. adults ages 18 and older. The NFCS studies individuals’ financial knowledge and aptitude, including their understanding of basic economic concepts like interest rates and inflation, and assesses their use of credit cards, conventional financial institutions, and alternative financial services. The results showed that:
- A study found that nearly one in three young adults was “financially precarious” due to poor financial literacy, inadequate money management skills, or income instability.
- Their counterparts in the financially striving category, which composed 10 percent of the studied individuals, also struggled with management behaviors like credit card usage and budgeting. Due to financial constraints, this group also risked their health by skipping doctors’ appointments, exams, and prescriptions.
- 22% of the 18- to 24-year-olds were categorized as financially stable.
- About 36% of the study participants were considered “financially at risk” due to an unexpected income drop in the past 12 months. They reported no savings to cover 3 months of living expenses and lacked resources to raise $2,000 for an emergency.
Fortunately, parents can access resources to help their children before and after adulthood. To raise financially stable kids, follow these steps while they grow into young adults. Being economically independent as a young adult first requires understanding these concepts in childhood.
How Can Parents Raise Financially Independent Children?
While your young children needn’t be financially independent, the first step to lifelong financial health is helping them understand money management. Teaching preschoolers the value of money, teaching children about responsible spending, and teaching adolescents the benefits of saving will benefit their financial growth. Discussing the dangers of debt, interest rates, and monthly payments is also important.
When your teens discuss post-high school plans, discussing finances and making a plan together is vital. Unmet expectations can cause conflict and frustration. Many families have kids over 21, even well into their 40s, who still depend too much on their parents. It’s tough for them to set financial limits at this stage, and they often feel completely drained. Understandably, you’d want your child to be happy, but thinking you’re not doing enough can be scary. It’s a challenging situation! However, when parents are intentional, young adults can become financially independent. Here are some practical ways to plan and set your child up for success.
Talk About It
Incorporate money matters into your conversations. While your child may understand financial management, it’s important to refresh their memory continually. Many college students may feel trapped trying to pay bills while having fun with friends. Speak with them and let them know you’re there for support. Talk with your child, not at them. It should be a conversation, not a lecture. Being calm, supportive, and encouraging will go further than reprimanding or instructing.
Ensure your child knows your expectations. Are they paying for college themselves, or can you provide some support via tuition? What about books? Can they live with you after they turn 18, and will there be rent? Will you cosign a car payment or loan? Many parents assume their child knows their expectations, but this may not always be true. Set time aside to discuss money matters and your vision of their financial independence versus their own.
Make a Plan
Make a plan with your child on how your financial support should end. You don’t want to unintentionally harm them by enabling poor financial decisions. Whether they quit school for a different career or graduate college, children must be invested in their well-being and strive for self-sufficiency. Parents shouldn’t abruptly put their adult children on the street but instead encourage them to set goals and create plans for self-reliance.
Set Boundaries
When making a plan, it’s essential to set and maintain boundaries. Limit the financial help you provide to encourage your child to make “adult” decisions and avoid your own frustration or financial strain. If you constantly solve their problems, they won’t learn to prioritize needs over wants. This sends a message that they can’t manage things on their own, delaying independence. Teach them that setbacks like college issues, breakups, or health problems are okay if there’s a plan for them to regain financial independence.
There must be firm and loving boundaries with your adult children, but not all of them need to be financial. The more you set and stick to boundaries in all areas of your relationship, the more your kids will understand financial boundaries. Allison Bottke, author of “Setting Boundaries with Your Adult Children,” discusses limit setting from her professional and personal experiences. She lays out these guidelines using the acronym “SANITY,” which we have found helpful. Here is the definition of SANITY:
- We need to change how we respond to our children. As parents, we shouldn’t try to change them. Stop the money flow and end our negative behavior. Bottke says, “I had to stop letting my son push my buttons, and I needed to stop accepting the consequences for his behavior.”
- Assemble supportive people: Chances are you have friends or loved ones who have experienced what you’re going through. It’s okay to ask for support or guidance. Knowing you’re not alone will help you tremendously.
- Nip excuses in the bud. It’s easy to enable your children’s poor behavior simply because they’re your children. Don’t encourage excuses or let them influence your decisions.
- Implement rules and boundaries. Sit down with your child, make a plan, and discuss how to follow it together. Give them a specific date to end financial support. A specific timeline with set dates is a great way to stick to a plan and a great learning opportunity for your children.
- Trust your instincts. Listen to your instincts and if you feel your child needs financial support or can’t support themselves. “For me, this meant getting in touch with my own life and fixing the messy person in my life—me,” Bottke says.
- Yield everything. You cannot control every aspect of your child’s life. Fixing their problems will stop them from growing and becoming independent. Love and support them, but avoid enabling them whenever you can.
Teach your child the value of money now to enable a deeper appreciation and healthier relationship with it in the future. These tips will help you support your adult child in becoming financially independent. For further questions on how you can support your child, please contact All For Kids.
Sources:
https://www.newyorkfed.org/press/pressbriefings/household-borrowing-student-loans-homeownership
https://www.cnbc.com/2018/03/22/rents-are-rising-at-the-fastest-pace-in-almost-two-years.html
https://www.nasdaq.com/article/credit-card-debt-statistics-cm393820
https://www.sciencedaily.com/releases/2018/08/180824135007.htm
https://firstthings.org/setting-boundaries-with-adult-children