Three Principles for Moving Your Children Toward Financial Freedom

During my almost 40 years in the financial planning business, one of the most common questions I’m asked by clients and friends is how to handle the financial implications of their children graduating from college. As a father to four children, I understand the transition from children in college to independence can be complicated for parents to navigate. As an advisor, I can suggest the following three principles to move your son or daughter toward a path of financial freedom.

First and foremost, push as many economic decisions to the child as possible. Economic decisions are at the heart of financial planning because you have to prioritize what is truly most important to you. Life is about choices and we spend money on what we value. Can I afford that new cell phone? Can I afford to purchase that car? What amount of rent can I reasonably take on? Let your children make these decisions.

Second, parents need to intentionally address what they expect of their children after they have graduated. Nothing should be left for interpretation. Can the young adult move back into the parents’ home after graduation? If so, will they be charged rent and how much? How long will they be permitted to stay with the parents? I know that these questions may sound harsh, but they don’t have to be. You are doing yourself and your child a disservice if you are not clear about how you will help them and for how long.

For example, my youngest daughter currently lives in New York City, and I have been providing her with a monthly allowance since her graduation. At first, the monthly amount helped her with rent, health insurance, cell phone expenses, etc. But as the months pass, the plan is to reduce the monthly allowance as she begins to take responsibility for all her expenses.