So, your child has their college degree. Success!
But now what? This is a tough economy with high inflation. For recent graduates, some have jobs, some don’t. Some may be underemployed, working at jobs they don’t particularly like as they begin their career path.
Along with a degree comes an important decision for many parents. What if your college graduate needs financial support? Should you help, and if so, how much is too much?
An online survey of more than 500 students and 500 parents found that about 65% of parents expect to support their children for up to five years after they graduate. And 68% of students expect financial support from their parents.
What’s the right way to help a young adult launch without creating an extended dependency?
There isn’t a one-plan-fits-all approach to giving financial support to adult children. You have to know your child. Be aware – There is a fine line between helping and enabling.
Here are some key financial areas and ideas on how to give a hand up and not a handout:
— Rent: Should you supplement your graduate’s housing or charge rent if he or she starts living at home.
24% of parents say they would charge rent. And interestingly, 48% of students would pay rent for their old room! (…not that they will be thrilled about it.)
If your adult child is gainfully employed, you can let them live at home for a year or two to save and build a cushion before launching. Once your child has a solid emergency fund (at least 3 months’ worth of expenses saved), that’s a good time to cut the financial cord. If you see more spending than saving, then charge for housing.
If your child graduated with student loan debt, living rent-free can help get rid of the debt a lot faster. In this case, you’re helping to speed up their financial freedom.
If your graduate is still looking for a job or is underemployed and has been otherwise financially responsible, you can choose to help with rent if you can afford it. But be clear about how long and how much you are willing to give.
If a graduate is living at home but their job hunting is lackluster. There’s nothing like a rent bill to put the pressure on to look harder.
— Cellphone: Should you keep your graduate on your plan?
Most cell companies have family plans that make it cost effective to have family members on the plan. So, if it’s cheaper to do so, you can let your child stay on your plan for a while. You should set a timeframe for how long you will be paying their bill. And be sure to split the bill or to stop paying if they have a job and can afford the payment.
— Car payment and/or auto insurance: Should the graduate take over car expenses?
Again, the key to helping and not enabling is to know your child’s financial situation in addition to his or her money-management history. Graduation is a time to step into adulthood. You can help ease the transition to independence, but you also don’t want to make it so easy that your assistance is taken for granted. You also don’t want to help your child establish a habit of living above his or her means. Find out how much your graduate is earning. If it’s a living wage, he or she needs to start living off of it. They all need to learn to budget at some point!
— Student loans: Should you help make the payments?
For many graduates, student loans can be manageable. But for some, it’ll be a heavy burden. In the latter case, don’t rush in to bail them out. Let them figure out how to budget around the debt. You can help them sort through the various payment or consolidation options. You can help your child pay back debt if you can afford it, but you should have a plan for when they take over their own debt 100%.
There isn’t a rulebook for how to help an adult child or when that help is too much. As parents, we need to watch our children and take notes. The level of financial support you provide will depend on how much your graduate is trying to help themselves.