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How to Cut the Financial Cord with Adult Children

Do you have an adult child who has not quite left the nest?  Mighty Mommy teams up with special guest Money Girl to discuss how you can help your 20-something child set out onto the road to adulthood.

By
Cheryl Butler,
Episode #303

MG: Many boomerang children who don’t have bills or credit accounts in their own names will have no credit because of their “thin” credit file. Having no or poor credit causes a variety of financial problems including high utility deposits, high auto insurance rates, or even being turned down to rent an apartment (which can help perpetuate the problem of still living at home).

MM: Are there ways that these young adults can get loans or credit to help them get established while they are in this transition period?

MG: One of the best ways to start building credit is through a secured credit card that reports payment transactions to one or more credit bureaus. A secured card is like a credit card with training wheels. You pay a refundable deposit that becomes your credit limit. For instance, if you pay $500, you can make total charges up to that amount. You receive a monthly bill and can build a positive payment history if you pay the minimum amount due on time each month.

MM: Should parents offer an allowance to these adult children if they help with chores while living back at home as a means to help them earn some money?

MG: I think adult children living at home should be helping out with basic chores for no compensation. That’s just what responsible adults do. No one is going to pay him or her to do laundry or clean dishes when they’re living alone or with roommates. That said, if they are doing a job that you would normally pay someone else to do—such as painting your home, cleaning your pool, or mowing your lawn—and your adult child wants that job, then I think it’s acceptable to pay him or her.

I think adult children living at home should be helping out with basic chores for no compensation. That’s just what responsible adults do

MM: What are the crucial financial steps adult children need to take as soon as they get out of college or high school and are living at home without any real means of supporting their own household?

MG: It’s critical to start building good financial habits early on. If you're new to the workforce, make sure you start saving from the start (even if you're only putting away a very small amount from every paycheck). It's also important to track your income and expenses to make sure you live within your means. The worst thing you can do is rack up debt because this can start a snowball effect of missed payments, bad credit, and ultimately, a very difficult situation to escape.

MM: What is the best savings plan for young people?

MG: The best way to save is by automating it. As soon as you have a job, ask your payroll manager to deposit part of every paycheck into a separate account, such as a savings or money market deposit account at an FDIC-insured bank. Put 90% of your pay into checking and 10% into savings. Once you have accumulated 2-3 months of living expenses in savings, you can then begin investing for retirement in a workplace plan, such as a 401(k). If you don’t have a retirement plan at work, you can open up and contribute to an IRA on your own.

Thanks to Money Girl for her helpful advice. You can check out all her articles on personal finance at quickanddirtytips.com/money-girl or subscribe to her podcast at iTunes and Stitcher.

Have you been in a similar situation where one of your adult kids has failed to launch? How did you manage to show him/her the path to independence?  Share your story in the Comments section at quickanddirtytips.com/mighty-mommy, post your ideas on the Mighty Mommy Facebook page. or email me at mommy@quickanddirtytips.com. Also visit my family-friendly boards at Pinterest.com/MightyMommyQDT.

Lazy guy on couch image courtesy of Shutterstock.

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