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Your Financial Life
By David Dorion / Dec 24, 2015

6 Secrets to Helping Your Kids Thrive Financially

How_to_Help_Your_Kids_Out_Financially_and_Still_Thrive_EDIT

As parents, you may be surprised (or not!) to hear that a large number of adult children still live at home. This truth can become particularly apparent during the holiday season when you see that, once the gifts are unwrapped and the New Year’s ball has dropped, your own adult children remain under your roof rather than returning to their own homes. Well, you should know you’re not alone. According to the 2015 US Census, the percentage of adult males aged 25-34 living at home hovers around 20%. For adult females of the same age, about 12% still live at home.

There are many aspects of modern life that provide reasons for these percentages. These reasons can include high living expenses and low wages, which in some cases don’t allow for adults just starting out to be fully independent. There are, however, measures you can take to help your children live independently while in their mid-twenties. Keep reading to find out what those suggestions are so that your kids can hopefully become financially independent sooner rather than later. The holidays might just be a good time to begin a conversation with your kids about leaving the nest.

1. Encourage their financial independence.

If your children are older, encourage them to seek out work that can build their confidence as well as give them a sense of financial independence that they can take with them once they leave home. If your children have obtained employment, but aren’t quite ready to move out, you can still help encourage their financial independence by arranging payment plans with them for responsibilities such as monthly rent for their room or a portion of the household utilities. Doing this can help prepare your adult children for bills they’ll need to pay when they do eventually leave home.

2. Encourage them to earn their rewards.

According to family financial expert Ellie Kay, kids appreciate their purchases more if they have worked for them. This can also apply to a college education, in which students who pay for their own expenses tend to receive better grades. If your kids intend to move out and rent their own space, encourage them to begin looking into rental costs within the area where they might like to move. Once they find their ideal neighborhood, suggest to your kids that they figure out the neighborhood’s average rental prices, then begin saving for at least the first and last month’s rent, so that they’ll have a security deposit, if one is required.

3. Encourage credit card discipline.

One way to help promote your adult children’s financial independence is to encourage them to use a credit card responsibly. Explain to them that having a credit card involves a combination of prudent use and diligence toward paying off the credit card’s balance. Remind them to monitor the debt they’ve accrued, and that it is always a good idea to pay their entire balance as quickly as possible. Also explain to them that credit card responsibility can lead to them having a higher credit score, which can be beneficial as they begin apartment hunting, or if they want to buy a big ticket item, such as a car.

4. Encourage them to take care of student loan debt.

While rising home prices and an erratic job market are factors that can keep adult children at home, according to Federal Reserve Board economists, college debt accounts for nearly 30% of why many adults live at home. To help prevent your adult children from being part of this statistic, encourage them to be financially responsible while they’re in college. Offer the suggestion that they take on a part-time job if their studies allow them time. If they do manage to get part-time work, remind your kids to save their money as part of an overall budget, in which some of that money can be used to pay down their loan debt, and in doing so, can ultimately give them the security they need to live independently.

5. Consider establishing a custodial account and encourage them to assume control.

Custodial accounts that carry your name and your child’s name can be a powerful impetus for them to leave the nest. This is because between the ages of 18 to 21 (depending on your state’s regulations), your children can assume total control of the account, and from there have resources to put towards college tuition or potentially a home of their own. Also consider investment vehicles such as mutual funds. If possible, gift a lump sum to your kids’ accounts to help jumpstart the funds. Keep in mind that this type of gift, which is also known as an annual exclusion, is subject to annual limits established by the IRS. If your gift exceeds the annual exclusion limits, it could be subject to a gift tax.

It’s also possible to set up an IRA for your children when they’re minors. For your children to qualify for an IRA, they must first have earned income. Earned income, in most cases, means a paying job, which can be another source of encouragement for your children to live on their own. Not only will they be working to support themselves, but also saving for their future with each contribution they make to their IRA. Just keep in mind there is a limit to the amount you or your children can contribute yearly to an IRA before the account is subject to a tax on the fund’s overall value. If you’d like to find out more about investing on behalf of your children, seek out the advice of a financial professional or someone who can offer competent tax advice.

6. Encourage them, period.

If your adult kids seem apprehensive to venture outside the safety of your home, try to put a positive spin on how being independent can benefit them. Remind your kids that financial freedom can be very rewarding.

As the end of the year approaches, consider these tips to help guide your kids’ eventual success away from home. Relay the importance of having a life-long plan once they are out of the house, and on a career path that can see them through to retirement. This way, your children can thrive on their own, while you thrive in the knowledge that you have successfully taught them how to be free and fruitful beyond the nest.

We do not provide investment advice. Nothing presented herein should be construed as a recommendation to purchase or sell a particular investment or follow any investment technique or strategy.

Neither Transamerica nor its agents or representatives may provide tax or legal advice.  Anyone to whom this material is promoted, marketed, or recommended should consult with and rely on their own independent tax and legal advisors regarding their particular situation and the concepts presented herein.

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