Our daughter just graduated from college and will be moving to a new city to start her first real job. How can we help ease this transition while still promoting self-reliance?
Congratulations are in order! Landing a job right out of college is a huge step toward financial independence. It’s also a great time for your daughter to be entering the workforce. According to a study by the executive search firm Korn Ferry, the average starting salary in 2017 for new college grads was $49,785—the highest it’s ever been. And it was even greater in major cities: $60,190 in New York and $62,829 in San Francisco.1
Of course, rents in those cities are also sky-high, meaning even a substantial starting salary might not be enough to make ends meet. In fact, about 40% of adult children ages 22 through 24 receive some financial assistance from their parents, who shell out roughly $3,000 a year, on average.2
I think it’s great you want to assist your daughter as she navigates this new (and often challenging) stage of life. But before you do, I’d urge you to think about how such support could impact the future—both hers and yours. Here are three factors to consider as you determine the best way to help your daughter prepare for life on her own.
1. Making ends meet
First, have your daughter make a list of essential expenses—including rent, food, health insurance, transportation, cell phone and student loans—and compare it with her after-tax income. (She can visit schwab.com/moneywise for budgeting tips and tools.)
If she finds that her expenses exceed her take-home pay, you may be tempted to help make up the difference. Before you commit to doing so, however, ask yourself:
Am I in good shape for retirement?
Do I have enough saved for emergencies and unexpected expenses?
Am I adequately insured?
If helping your daughter means jeopardizing your own financial security, it’s probably not a wise move. We don’t want to be in a position where our kids have to support us later in life.
That said, it generally does make sense to lend our kids a hand when we can, especially if the assistance will help them become more financially secure down the road. For example, you might decide to help with startup costs, such as a security deposit on an apartment, so she can accept her dream job in a more expensive city. Or you could provide longer-term assistance—such as keeping her on your health insurance until she’s 26, which you’re allowed to do, thanks to the Patient Protection and Affordable Care Act.
In general, though, I believe it’s best to limit your financial support to essential expenses. There’s no harm in treating her to something special from time to time, but you don’t want her to consider you a lifelong source of funds.
2. Managing student loans
Student debt is one of the most daunting financial pressures new grads face. According to the latest national numbers from the Institute for College Access & Success, 69% of 2014 graduates carried an average of $28,950 in student-loan debt.3
If your daughter has such debt, emphasize how important it is to make every payment on time, lest her credit rating suffer. You might also help her investigate whether she’s eligible for an income-driven repayment plan, which would allow her to pay only a percentage of her income, or the Public Service Loan Forgiveness Program, which is available to employees of government organizations and tax-exempt nonprofits. (You can find more information about both these programs at studentaid.ed.gov.)
If she doesn’t qualify for such programs, you could investigate whether consolidating or refinancing her loans would help make her monthly payment more manageable. But make sure to do your due diligence: Federal loans typically offer 10-year repayment terms, while consolidated or refinanced loans often have terms of 20 years or more. Extending her loan term will almost certainly reduce her monthly payment—but will also mean paying a lot more in interest over the life of the loan.
3. Maintaining good credit
Be sure, too, to discuss the pros and cons of credit cards—including the perils of revolving debt, the importance of making on-time payments and the benefits of paying off balances in full. Not only will lenders and landlords consider her credit history when she applies for an apartment or a car loan, but many employers now use applicants’ credit scores as a proxy for responsibility.
And finally …
As much as we want to take care of and protect our children, it’s often good to let them figure things out for themselves. Even if it means subsisting on ramen and sharing a fifth-floor walk-up with three roommates, living within one’s means is a life lesson worth learning.
2Quoctrung Bui,“A Secret of Many Urban 20-Somethings: Their Parents Help With the Rent,” nytimes.com, 02/09/2017.
3Project on Student Debt, 2015.
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