How to make your adult children financially independent

By Marianne Curphey

It's a difficult time to be young. The number of young adults out of work in the UK is now just above 1 million, according to the latest numbers from the Office for National Statistics (ONS).

Given the tough economic climate their children are facing, it's natural for parents to want to help by offering money, shelter or both. In fact 62% of parents plan to give their children greater financial help than they themselves received at the same age because of the higher costs of living and university fees, according to a July 2012 survey from long-term savings specialist Standard Life.

But how much help is too much help? By trying to make sure your children have a soft landing into adulthood, are you actually preventing them from flying the nest in the first place?

More harm than help
The financial perks of living with mum and dad into adulthood certainly work in the children's favour. Rising housing costs have caused the number of young people living with their parents to increase 20% since 1997, the ONS reported in May 2012. Those who do return home can save nearly £59,500 on rent, bills, taxes and insurance by living with their parents for five years, First Direct bank estimated in July. adult-children

Yet Becky Wright, counsellor and director at life coaching company New Leaf Life Design, questions whether this parental generosity could prevent young adults from learning important money survival skills.

"When we grow up, we learn what it is to be independent. We can start to become our own person and define our own identity in the world," Wright says. "This allows us to separate from our parents and careers and become who we want to be."

As difficult as it is to survive in the current economic conditions, living independently from one's parents is part of growing up.

"It enables you to cope with both being alone and being with others and knowing you can survive both," Wright says.

Don't skip important life lessons
Despite the concerns, for some families, living with adult children is a logical solution to dire financial circumstances. If your children must return home, just make sure they learn the following three lessons while under your roof:

1. The true cost of living: "Parents very rarely charge a commercial rent to their loved ones if they are living at home," says Philip Pearson, a father of two and an independent financial adviser based in Southampton.

Parents, says Pearson, need to strike the right balance between helping children save on living costs and fostering independence. Adult children need to understand what the costs are in running the home, and make a fair contribution towards them -- including utility bills, council tax, insurance, repairs and grocery costs.

"An equal share should be met by all," Pearson says. "On the plus side, many parents decide to save the rent their offspring pay each month and use this towards a deposit to assist in the purchase of their [kids'] first home."

When forming an expense-sharing plan with your children, get it in ink. Include the portion of expenses and housekeeping responsibilities your children must share, as well as a planned move-out date.

"Have a plan between you that you both agree to stick to and put in some goals and an end date so both parties know what they are working toward," Wright says.

2. How to build a credit history: If young adults live at home with their parents, they are unlikely to build up a credit history, as none of the main bills will be in their names.

Having a credit card they pay off each month will help young adults when they do venture out into the real world and need a loan for a car or home.

"If you have a credit card and use it responsibly, this is a great way of demonstrating to a potential lender that you can handle credit," says James Jones, head of consumer affairs at the credit agency Experian.

Another easy way for adult children to build credit, Jones says, is to get their own mobile phone contracts. The history of the contract will get reported to the credit agencies, and on-time payments will improve their credit ratings.

3. The importance of saving: Effective money management starts with the skills of budgeting -- something young adults won't have to do if mum and dad are helping with bills. Although parents may wish to help with some costs, such as college fees, young people also need to learn the value of working to support themselves, even if it is only a part-time job.

Once they are earning an income, however small, young adults should start paying their parents rent. A personal savings plan should be next on the list, as this will enable them to move out and purchase or rent a home of their own.

Pearson advises putting short-term savings in a deposit account and long-term savings into a pension plan. 

"At least 40 per cent of income should be saved in order to have any hope of building up sufficient capital," Pearson says.

Helping your children help themselves
The greatest harm in allowing your children to remain dependent for too long might be to their morale.

"Parents can often project their insecurities onto their children so it is like trying to manage their own lives through over-protecting their children," Wright says.

Young adults will feel more empowered if they take responsibility for their financial actions.

"To be able to take responsibility for your actions and your life allows you to be in control of it," Wright says. "You have some choice then in what happens next, and this is why it feels ultimately empowering."

So, if you really want to help your children, encourage them to help themselves in the long term rather than just sheltering them for the short term."Perhaps a session of money coaching would be helpful to allow the individual to see how they can plan to be self-sustaining," Wright says.

See related:
Debt payoff strategy: Renting out a spare room, Parents do more harm than good by shouldering children's debt

Published: 14 September 2012