When it comes to setting up your adult children for long-term success, a vital cornerstone is providing them with critical financial knowledge. Pure’s Principal, Marc Horner, CFP®, shares practical ways you can prepare your children to build a solid financial foundation.
Transcript
As a financial planner, a common question I hear from parents is: ‘How do I help my adult children become financially independent?’ My wife and I have four kids so I get it. Parents want to support their kids, but we also want them to stand on their own.
So today, let’s talk about a few practical ways you can prepare your children build a solid financial foundation.”
Start the conversations early and often
“Money conversations can be uncomfortable—but avoiding them leaves your children unprepared. To help break the ice, think about starting conversations by sharing what you’ve learned in your own experience — your wins and your mistakes. Personal stories and candor about your own misses will stick FAR more than some abstract advice.
Also, this is not a “one and done” assignment. Keep the door open. Encourage them to ask questions. Financial independence begins with financial awareness. Awareness requires communication. The more the better.
Show the power of Saving and Investing Early
Some advisors recommend starting with budgeting. That may be fine if you want to put the kids to sleep OR if you have dinner guests that have overstayed their welcome. Nothing kills the mood more than, “Hey, let’s talk budgeting”.
Instead, think about showing them the potential results of financial awareness. The WHY. One of the best ways to do that is to go to a online compound interest calculator. Show your kids what could be possible by getting started investing now. Even more powerful, reduce the time frame by 5 years and show them the PRICE of waiting. It will blow their minds…and maybe yours.
Even if it’s just a small amount, starting early makes all the difference. Time is the most powerful factor in investing. Encourage them to take advantage of workplace retirement accounts, or even start with something simple like a Roth IRA.
Now that we have their attention by showing them what is possible, we can downshift to some of the more dry ideas.
Teach Budgeting That Works in the Real World
“Budgeting doesn’t have to be complicated. One framework to consider is the 50-30-20 rule: 50% of income goes toward needs, 30% toward wants, and 20% toward savings and debt repayment.
The goal is not to equate budgeting with austerity. No more fun for you! The goal is to help them understand the importance of balance. Both in their financial and non-financial lives. When they understand this, feelings of clarity and control will follow.”
And don’t overlook the importance of an emergency fund. Three to six months of expenses gives them breathing room when life throws curveballs.”
Credit and Debt — Tools, Not Traps
Some financial planners talk about debt as the boogy man. Sure, too much debt is bad. But so is too much bacon. Am I giving up eating BLTs? Absolutely not. I just don’t eat them at every single meal.
Debt is just a tool—it can work for you or against you. Building a strong credit history opens up flexibility and options – which are good – but only if they understand how it works. Paying bills on time and avoiding too much debt are key.
If they already have student loans or credit card balances, talk about how different repayment strategies impact their future.
Encourage Responsibility Through Action
“At some point, you have to step back and let the kids take the wheel.
One way my wife and I did that with our own kids was to create an “At Home 401k Plan”…patent pending.
Whenever the kids got some birthday, graduation or Christmas money, we told them we would match anything they chose to save instead of spend. Eavesdropping on their conversations, they total got it – spend today but that leaves me no “fun money” – save today and I double my money. What are you going to do? I am not making this up. I have heard them ask each other.
Usually, they ended up deciding to choose a bit of both – balance, baby – PERFECT!
Closing Message
Helping your adult children prepare for financial independence isn’t about textbooks, formulas or cutting them off—it’s about helping them understand what is possible, equipping them with the tools to succeed, letting them struggle and learn and modeling solid financial habits.
From one of my favorite movies, Parenthood, the family patriarch Frank Buckman said, “As a parent, there is no end zone, you never cross the goal line, spike the ball and do your touchdown dance.”
While true, helping your kids to get in a position to thrive—personally, professionally, financially…across the board—that comes pretty close to being worthy of a touchdown dance.
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IMPORTANT DISCLOSURES:
• Investment Advisory and Financial Planning Services are offered through Pure Financial Advisors, LLC, a Registered Investment Advisor.
• Pure Financial Advisors LLC does not offer tax or legal advice. Consult with your tax advisor or attorney regarding specific situations.
• Opinions expressed are subject to change without notice and are not intended as investment advice or to predict future performance.
• Investing involves risk including the potential loss of principal. No investment strategy can guarantee a profit or protect against loss in periods of declining values.
• All information is believed to be from reliable sources; however, we make no representation as to its completeness or accuracy.
• Intended for educational purposes only and are not intended as individualized advice or a guarantee that you will achieve a desired result. Before implementing any strategies discussed you should consult your tax and financial advisors.
CFP® – The CERTIFIED FINANCIAL PLANNER® certification is by the CFP Board of Standards, Inc. To attain the right to use the CFP® mark, an individual must satisfactorily fulfill education, experience and ethics requirements as well as pass a comprehensive exam. 30 hours of continuing education is required every 2 years to maintain the certification.
