Teaching your adult children to be financial grown-ups

Your children are grown and venturing out on their own, and you’ve probably spent years teaching them the basics of money management.

You may have gone further and helped them set up bank accounts, mapped out saving and spending strategies, or even explained rudimentary investing.

Now that they’re ready to leave the nest, it’s time to see how they put those lessons into practice. Of course, they may still need your help in navigating real-world situations. Here are a few ideas to get your children off on the right foot.

Keep them active on student loans

Today’s college graduates end up with an average of $33,000 in loans after earning a bachelor’s degree. Make sure your children are smart about their loans.1

Before they ever set foot on a college campus, go over the fine print with them. Do they have a public loan or a private one? What are the terms? How long will it take to pay the debt off and when will repayment start? Do the loans allow for debt forgiveness after a certain number of years in the public sector? Answering these questions ahead of time will help your children be prepared for the realities of having loans, making payments, and learning to budget for the future.

If they have part-time jobs while they’re in school, encourage them to make early payments toward their loans. Reducing the loan total even a small amount can translate into big savings on interest later on.

Take them to the bank

Even if your children are familiar with savings accounts, when they move out on their own, they’ll also need a checking account to pay their bills. Checking accounts are an excellent way to learn budgeting skills since they require account holders to track money coming in and money going out. Encourage your children to research banking fees and minimum balance requirements to find the best banking institution for them.

Instill the power of compounding

Young people may not have a lot of money, but they’ve got something more precious on their side: time. The earlier they start saving, the more time their money has to grow. If they start in their early 20s, they could be well on their way to accumulating $1 million by retirement.

Look into the many options available for your children to begin planning for retirement, like IRAs, 401(k)s, or other employer-based plans. Then, help them research well-managed, low-priced funds to invest their money in. Ideally, you’d like to find funds that outperform the market, with no or low sales charges, a low expense ratio, and low turnover. Working with a financial advisor or a retirement consultant can help you identify a smart option for your (and your child’s) needs.

Give them some credit

Since the Credit CARD Act of 2009, it’s become much harder for anyone under 21 to get a credit card without proof of income or assets. But you can still teach your children to use credit responsibly even if they haven’t found employment yet.

First you can co-sign on a card with them, allowing them to start building up their credit while they’re still in college. Just remember that your own credit score could suffer if they don’t pay their bills. Or you can make them an authorized user on your card. They will inherit your credit history, which can help them build their credit faster. It will also give you the opportunity to impart good spending habits by reviewing their charges together.

Another option is a debit card tied to a checking account. That will give them access to plastic when they need it, and their spending will be limited to how much is available in the account.

Let them fail (sometimes)

Accept that your children may stumble on their way to financial independence so try to resist the urge to swoop in and save the day. Unless the situation is dire, they’ll learn many more valuable lessons when they figure it out for themselves.

1 "Reasonable Debt." Edvisors. Accessed January 29, 2016. https://www.edvisors.com/plan-for-college/benefits-of-college/reasonable-debt/