Financial Literacy for Adult Children

My adult children don't have the best grasp of their finances and still depend on occasional support from me. How can I steer them toward developing habits for successful money management and achieving financial independence?

A report from Pew Research shows that more than half of adults under age 34 are at least partially financially dependent on their parents.¹ Common reasons include rising education and housing costs, which have far outpaced earnings for young workers in recent decades, leaving many of them saddled with student loans and struggling to afford rent or save for the purchase of a first home. Add to that the allure of lifestyle aspirations, and we've got a recipe for encouraging young adults to regularly live beyond their means.

Some parents may help by subsidizing monthly expenses, while others prefer to gift their children lump sums—perhaps as an advance on their inheritance. However, your instincts are right: These are not sustainable solutions. Part of becoming an adult is building a sense of competence and autonomy—and you're not promoting either by repeatedly bailing them out.

Of course, laying the foundation for financial literacy during their childhood and teenage years is ideal, but if they're still struggling in their 20s and 30s, you'll need to tread carefully yet firmly. Here are some steps you can take.

Lectures seldom persuade anyone. When a child is moving out, landing a first job, or facing some other transition, it's a good time to ask if they need help setting up sensible financial practices—such as automating the payment of recurring expenses and setting calendar reminders for everything else—instead of rattling off a list of dos and don'ts.

Rather than cutting them off immediately, explain that it's time to shift toward more independence. Getting your children to be self-sufficient may require some trial and error, especially if they've come to feel entitled to your support.

If you've been writing them a check every month, for example, propose reducing your contributions by a certain amount next year, and maybe entirely by the following year. You can also make small changes immediately, such as asking them to get their own cellphone plan or streaming accounts. These conversations can be highly emotional, so be mindful and pull in your financial advisor or even a therapist if you need assistance.

It's important that your children know what they can truly afford, and that starts by calculating how much of their take-home pay to earmark for fixed costs. After rent, groceries, and other must-have expenses, how much is left over for nice-to-haves like new clothes or entertainment? If they can't yet stand on their own, perhaps together you can draw a reasonable timeline to do so and adjust their spending to accomplish that goal.

Easy credit can be a tempting way for younger adults to fill a funding gap. But compounding credit card debt can quickly snowball and become unmanageable. So perhaps explain that while credit cards can be convenient and sometimes necessary to cover an unexpected expense, using them to enjoy an unaffordable lifestyle isn't a sound, long-term strategy.

It's also important to highlight the long-term effects of a poor credit rating should they miss a payment or, worse, default on a loan.

Although saving for retirement isn't top of mind for most young adults, help your children understand that their greatest investing advantage is time. Online calculators can vividly illustrate how regularly investing even small amounts in your 20s or 30s can grow into substantial sums later in life, with relatively little sacrifice in the here and now.

Also ask if their employer matches a percentage of their contributions to a 401(k) account—and explain how failing to take advantage of such benefits means leaving part of their total compensation on the table.

Achieving financial independence is not always an easy task. But encouraging your children to build better money habits—and continuing to provide guidance as they venture down this path—is a gift that will last the rest of their lives.