Financial help for young adult children – 8 easy steps

Financial help

Oh no, they’re BACK!

How to help adult children financially without enabling them

After you said your goodbyes, dropped the kids off at college and shed a few tears, you had actually adapted quite well to the “empty nest” and all its benefits. You had high hopes that the investment in a good education and in a carefully chosen degree would send your “fledglings” soaring into the world of adult responsibilities with a new level of independence—but now they’re back.

According to the Pew Research Center, three out of 10 parents are reporting that their grown children ages 25-34 are coming home. They are called the “boomerang generation” or “generation stuck.”

Just a decade ago, coming back to live in your parents’ house carried with it a certain stigma, but not any longer according to Christina Newberry, author of The Hands-On Guide to Surviving Adult Children Living at Home.

Due to a lagging economy and stale job market, many young adults have found themselves with a good education, accompanied by large student loans, low to no job prospects and the need to count on their parents for help.

This is definitely a less than ideal scenario, but if that’s your reality, how can you help your grown children get through this difficult period without creating a financial drain on your household and without fostering a dependent attitude (i.e., “enabling” them)? Here are a few suggestions on how to make the best of the circumstances while still preserving relational and financial balance.

1. Have a written agreement between you/your spouse and your adult child. This may seem over the top, but depending on the maturity of your child, it may be necessary. The written agreement should include any financial obligations as well as housekeeping duties that your son or daughter should satisfy while in your home.

2. Ask them to contribute financially. If your son or daughter is working a low-paying job, ask them to pay rent and expenses that are appropriate for the income they are earning. Don’t allow freeloading on food—they should contribute to the “household pantry.”

3. Help them learn solid financial habits. Teach them the simple 10-10-80 money rule: Whatever income they earn, teach your student to save 10%, designate 10% towards a charitable cause of their choice, and to live on the remaining 80%.  This simple money rule will cultivate in them the habit of regular saving (which is one of the secrets to long term financial success), to be generous (those who give tend to lead much happier, content lives) and to live within their means.

4. Help them understand budgeting basics. Sit down with your adult child and help him or her put together a financial plan (budget). There are great free online budgeting software options and apps, such as Mvelopes.com, to make this process easy and fun. Mobile friendly apps with frequent reminders and warnings will help her stay on top of every penny spent or over-spent! Having a plan is just the beginning.  In order for the plan to work you need to measure the plan against the real results.

5. Help them learn from your financial mistakes: This may not be very comfortable, but granting your adult child an honest look into your finances can teach them much more than you think. If you’ve made mistakes like taking on too much consumer debt, buying more home than you could afford, or allowed spending to get out of control, than you can use those mistakes as great lessons. Take your son or daughter out for dinner and have a great heart to heart conversation. Show them how those mistakes have impacted you in the past or may still be impacting you today.

6. Set deadlines. It’s important both for you and your child to have a clear progress strategy. If they know they have to move out after a certain amount of time, they’ll be that much more proactive in their job hunt. If no deadlines are set and there is little accountability, you may find yourself with Junior on your couch, eating your potato chips and watching your cable TV…indefinitely!

7. Relationship FIRST. According to Pew research, 25 percent of the returning young adults reported that the change has had a negative impact on the relationship between them and their parents. So, even though having a child return home may not be an ideal situattion, having your children back at home may give you the opportunity to reengage with them. Cook together, talk over coffee, play board games as a family—treat this season as another opportunity to strengthen the relationship.

8. Be their best cheerleader. Having to come home and struggle to land a solid job can be very tough and, at times, even embarrassing. Encourage and pray for your child daily. It’s not your job to “fix” everything for them, but having your moral, emotional and spiritual support will mean the world to them.

Big, Fat Wedding OR Paying Down Debt?

Big wedding or paying down debt?

Applying financial wisdom under increasing social pressures: guide for engaged couples.

When I first looked at the figures I could not believe my eyes.

Based on the survey released by TheKnot.com, average wedding cost in 2012 was $28,827.

My first thought was, I have never spent that amount of money on anything! With exception of my mortgage of course.  My second thought was, 28,000 in one day! That can’t be true.  My third thought was, why not rather put that money towards a down payment on a home or towards paying down debt, student loans or simply saving it?

It seems that even in these uncertain economic times, where jobs are not easy to find, debt is rampant and saving even for basic short term emergencies is not common, couples still choose to spend enormous amount of money on their BIG DAY.  I can’t help but think that social pressures have a lot to do with it. Unfortunately quite too often there are more pressures created around spending money and not enough social pressure exists to help young couples start their union on a strong financial foundation. What if there was a way to have the best time of your life on your wedding day while at the same time giving yourself the best opportunity to start your life together on the right financial footing?

Before my wedding day my mom gave me great advice. She said, “Don’t focus on one day, focus on a lifetime!” Here are few words of wisdom for couples that are planning to tie the knot in the near future. These wise proverbs will hopefully get you thinking beyond your BIG DAY and help you focus on your lifetime.

“The borrower is slave to the lender”

No matter how you slice it, debt is never good. Starting your marriage with a burden of debt will add tension and unnecessary stress to what will already be a big adjustment period.

If you are getting a nice sum of money from family members towards your wedding, consider scaling down your wedding cost and use portion of those funds to pay down your debt.

Here is how you should prioritize your debt repayment:

Student loans. These will not, in most cases, be written off, even through bankruptcy.

Consumer debt (store cards / credit cards)

Auto loans. Once you pay your loan off, keep driving your cars and make those payments to yourself.

“Failure to plan is planning to fail”

Don’t buy more home than you can afford. Dreams of your perfect, white picket fenced home can cloud wisdom around home buying. Watching friends purchase beautiful (often outside of their budget) homes can create pressure to keep up. Here are few important items to discuss around home ownership:

– Renting or buying?  Which one is better for you? There are great online calculators to help you consider pros and cons of both.

– If you decide to purchase a home, understand all of the costs involved: utilities, upkeep, HOA dues etc.  Make a detailed budget with all of those fixed and variable cost included.

– Consider one income rule as you shop for your first home. If you are a two-income family, could you afford to keep your home even if one of you lost your job?

“Precious treasure and oil are in a wise man’s dwelling, but a foolish man devours it.”

Last but not least, establish a habit of saving, which means spend less than you make on consistent basis and save the reminder, however small it may be.

Young couples face constant financial pressure. Decisions are often made without guidance or full understanding. The good news is that there is plenty of practical wisdom for anyone who is willing to listen.  Solid financial advice, which if applied, will provide every young couple with a string financial foundation upon which they can build and thrive.

Student loans, credit history and debt repayment strategy

1. Why is it so important for students and graduates to make debt repayment a priority as they build credit history?

Credit history, by nature, measures consumer’s ability to repay debts and their demonstrated responsibility in repaying debts. A person’s consumer history (numerically represented by individual Credit Score) is then used when approving credit (credit cards, home loans, store cards, car loans, etc.). Credit history is also critical when renting an apartment, applying for utilities, cable TV, or even a cell phone plan. Everywhere we turn our personal credit history is being verified in order to access basic services, so it’s critical we behave in such a way that helps us establish and maintain a positive credit history.

Many young people should remember that a negative credit history will cost them money. This could be in the form of higher interest rates on a car loans, credit cards, or even home loans. Acquiring a habit of paying debts on time, every time, is critical in order to save money long term.

2. What are the benefits of paying of small balance debts first?  Large balance debts?

When looking at debt repayment, paying off small balance debts first has the power to create quicker emotional wins for an individual. Since debt repayment, for most of us, is a marathon and not a sprint, it requires long-term commitment and stamina. Being able to celebrate quick wins along the way will help us stay encouraged to keep going.

Being able to experience quick wins, especially for recent graduates who are also trying to find work and establish themselves in their new out-of-school reality, can be critical to help them stay out of debt.

3. Which debt would benefit a student/grad most to get rid of first (consumer debt, student loans, etc)?

This answer has to be prefaced with one very important fact regarding student loans: Student loans are the only type of debt that, in most cases, cannot be dismissed even though bankruptcy.

Student loan interest rates range from 3% – 6.8%, so compared to other consumer debt, like credit cards for example, it tends to be lower. Student loan balances, however, tend to be higher (averaging $26,500 – $27,500) than a typical credit card or even car loan.  Assuming that recent graduates have various debt balances including student loans, car loans and credit card loans, I would suggest tackling the lowest balance debt first to help them score quick wins and then roll that payment over to the next smallest balance, which in turn will accelerate their debt pay off. It’s critical that no new debt is incurred in order to keep the debt roll down method working to the max.

4. What are some examples of different debt payoff methods students/grads can use?

The best debt pay off method includes having a written spending plan (budget) where every single dollar is assigned to a specific spending category and the student is committed to stick to those boundaries. Commitment to live within their means will make or break someone’s debt repayment.

Choosing to pay smallest balance first versus highest interest rate debt should be considered in light of recent grad’s cash flow and emotional stamina (do I need frequent encouragement or am I successful in sticking to long term goals?).

The debt roll down is a very common and effective strategy to eliminate debt fast. Once one debt is eliminated, instead of absorbing that payment amount into the monthly cash flow, it should be reassigned to the next debt payment, and then to the next one.

5. How can a student/grad’s financial circumstances affect which method they use to eliminate debt?

Positive cash flow is critical when it comes to graduate’s ability to eliminate debt. When there is comfortable room in your monthly cash flow, stick to, or accelerate, your debt roll down.

When cash flow is an issue there may be a need to create more breathing room in your monthly budget as well as a need to create emergency savings (savings is key to overcoming the debt cycle.) In that case, once you pay off one debt, consider taking that payment amount and open up a savings account where you can start building an emergency fund. Having that extra cash set aside will not only help you emotionally, but it will also give you that extra cash support in case something unexpected comes up (car problems, broken appliance etc.).

6. For students/grads paying down federal student loan debt, is it wise to look into any repayment plans they may be eligible for?

Depending on student’s financial situation, there are payment options available but should ONLY be considered under several financial circumstances since both the Graduate Repayment Plan (payments can be extended up to 10 years) and Extended Repayment Plan (payments may be extended up to 25 years) offer lower payments on the front end but higher pay off amounts in the long run. Any way you slice it, in order to pay the least in the long run you should stick to your original payment option, plus pay extra if possible.

7. If grads have private student loans, where should those fall on the list of debt priorities?

Private student loans should have a high repayment priority on students list for various reasons. These loans are often subject to a variable interest rates, which means rates could go up since they are tied directly to an index. Private loans usually require a co-signer which puts the person who co-signed in a position of liability in case student is not able to make the payments. To protect the co-signer the student should repay the loan as soon as possible. Unlike with federal student loans, private loans carry much steeper penalty for missed payments and defaulting on your private student loan will almost immediately impact the credit history. Lastly, in case of student’s death, the co-signer is obligated to repay the loan.

Are you ready to support yourself financially?

If you’re living with your parents, chances are you’ve considered what life would be like if you had your own place. Many teens and young adults in their 20’s are in the same boat—trying to convince themselves that things would be greener on the other side. But in reality, most students and even young professionals have yet to consider the ramifications of leaving the nest.

As emotions rise, you’ll feel tempted to move out before thinking it through. Before you do, take the quiz below to find out if you are financially ready. Answer each of the following questions and check your score at the bottom of the quiz to see how you stack up.

1. Do you know approximately how much your parents pay for gas, electric and water each month?

a. Yes, we have discussed it, or I’ve looked it up.
b. I know it must be expensive because my parents are always yelling at me to turn my lights off when I leave and to take shorter showers.
c. Why would I know that if I’m not paying for it?

2. Do you have your own bank account in which you deposit and from which you withdraw from on a regular basis?

a. Yes
b. I have a savings account from when I was younger, but no bank account that I use on a regular basis.
c. No

3. How stable is your job?

a. Extremely stable. I have recently been promoted or hold a steady position.
b. I just started, but I think it should be enough to pay the bills.
c. What job?

4. If the whole family was going on a vacation to Florida, I would most likely:

a. Pay for my plane ticket and some of my meals.
b. Use my own money for meals and extra expenses if needed.
c. Make sure to tell my parents “thank you” for a free vacation to Florida.

5. You’ve found a place you would love to rent for $600.00 a month. Next, you:

a. Double check I am making enough money to pay the rent, and call to estimate how much gas, water and
electric bills will be to ensure I have enough money for everything.
b. $600.00 would be tough. I’d talk to my parents to see if they could help out, or consider getting a roommate.
c. $600.00 would be nothing for my parents. I’ll let them know that’s how much it will cost.

6. Which of the following most accurately describes why you want to leave the nest?

a. I am making enough money to cover my rent, utilities, car payment/gas, food and other expenses.
b. I am feeling pressure to live on my own by my parents or peers because I have a good job and I’m of the age where many of my friends are moving out.
c. I’m tired of dealing with my parents.

7. Which most closely describes what you currently pay for:

a. Gas, car payment (if you own a car), card insurance, credit card
b. Gas and food when I go out to eat
c. Nothing