Moving Towards Financial Independence
This article was originally published on August 20, 2013 and expired on October 8, 2013. It is provided here for archival purposes and may contain dated information.
Do you have a young adult living in your home? If so, join the crowd. According to recent Pew Survey analysis of Census Bureau data, "In 2012, 36% of the nation's young adults ages 18 to 31—the so-called Millennial generation—were living in their parents' home." Multi-generational households are common today for a variety of reasons, including unemployment, increased college attendance (and student loan debt), and a delay in marriage age. I think most parents look forward to the day that their children are financially independent, but in today's economy it's not easily achieved. However, financial independence is more easily reached when young adults have a chance to practice positive financial habits.
It's the back-to-school season and now's a timely moment to talk to your young adult about money. Whether your child is heading off to college, living at home, or has moved out recently, consider helping your young adult develop a spending plan. The steps to creating a spending plan include:
- List all anticipated costs
- Determine all sources of anticipated income
- Decide together who will be responsible for paying which costs
- Develop a
monthly spending plan
- Check how the spending plan is working and make revisions as needed
To begin, sit down with your young adult and make a list of all anticipated expenses. Include expenses that you, the parent, plan to pay for as well as expenses your young adult will be responsible for paying. Do your best to estimate costs.
Once you have a list of expenses, talk about who will pay what. This is a good time for young adults to understand all of the expenses related to independent living including car and health insurance, car maintenance, clothing, food, and more. While you may still be paying some of these expenses, young adults need to be aware that these are expenses they will be paying in the not-too-distant future. Now is the time to be clear about your expectations as well as to listen.
What are the sources of income for the young adult and when will the money be available? For example,
- Will your student be receiving financial aid?
part of their financial aid package include work study?
- Do you expect your student to work part-time during college?
- If working full-time are the work hours guaranteed or will they vary?
The next step is to build a monthly spending plan (budget). People have an easier time managing their spending when it is clear how much money is available to spend and what expenses are anticipated during a short-time period such as one month.
The University of Illinois Extension Financial Wellness program offers several budgeting tools (such as an Excel budget form) at http://web.extension.illinois.edu/financialwellness/resources.cfm. Of course, to know if the spending plan is working, your young adult will need to keep track of where their money goes. This is a great habit to develop and especially useful during times of transition! To track expenses, jot down spending once a day or as money is spent – using a portable device such as a cell phone is an easy way to do this.
It may be that after a month or two, the spending plan will need to be adjusted. Perhaps you forgot an expense category, or some costs are more than anticipated. If needed, adjust the spending plan as soon as possible before too much spending has occurred. When expenses are higher than anticipated in one category, then spending in another area must be decreased or more money (income) must be found.
Money management takes practice, and will likely involve a few mistakes along the way. But step-by-step we can help the young adults in our lives more forward to financial independence.
Source: Kathy Sweedler, Extension Educator, Consumer Economics, firstname.lastname@example.org
Pull date: October 8, 2013