Ramping up a child’s financial independence from their parents or guardians as they transition into adulthood can be tricky. If approached correctly, young adults can be empowered with smart financial habits.
Here are eight tips from the American Bankers Association website that will aid families in facilitating financial independence:
- Set up a bank account: There’s no better way for teens to understand how to practically spend, save and navigate the financial system than having a bank account (or accounts). The FDIC’s BankFind Suite is a great resource to get started: banks.data.fdic.gov
- Help them build credit: Financial independence as young adults will be easier if children build credit as teenagers or if you help them build it by adding them to your credit card as an authorized user or help them sign up for a secured credit card.
- Start with small expenses: To build a sense of fiscal responsibility and an understanding of paying bills, start the process slowly — for example, have teens pay for some (or all) of their phone bill each month or consider having them pay for other basic expenses, such as toiletries, haircuts or clothes.
- Create productive financial habits: Emphasizing to teens the importance of saving is important for their future financial success. Ensure they understand the difference between needs vs. wants as well as money management strategies, such as the 50/30/20 rule, which recommends focusing 50% of your income on needs, 30% on wants and 20% on savings.
- Be transparent about financial realities: It’s key to be upfront with your child about the cost of services (Netflix, for example) as well as recurring expenses such as rent and groceries.
- Help them create a budget: Financial independence will feel more attainable with concrete numbers as goals. Creating a monthly budget is a tangible, practical way to think about money.
- Be clear about the impact of debt: Some debt might be unavoidable, but excessive debt can be a significant burden to achieving financial independence. Helping your teenagers make money decisions that don't create debt will help them in the long run.
- Don’t phase in changes too quickly: Becoming financially independent can be a stressful part of the transition from teenager to adulthood. Starting early and making gradual changes is helpful for a smooth transition.
For a full list of resources or to read this article online, visit the ABA website at:
https://bit.ly/3RSnVSV
