Aug 06, 2020

Graduating in Uncertain Times: How Parents Can Help Kids Secure Their Financial Future

By Jason Rosener, CFP®

The transition between college and your first job can be a tough period to navigate. For many graduates, they’re stepping out into the “real world” for the first time, having to juggle the challenges of trying to get their career off the ground and moving out of their parents’ house. These tentative steps towards independence can be exhilarating and nerve-wracking at the same time.

For the class of 2020, this period of transition has probably been more stressful than liberating. Many saw their final year in college cut short with graduation ceremonies either canceled or gone virtual as a result of the ongoing coronavirus pandemic.

Then there’s also the unsettling fact that they’ve graduated into a recession. Even though some economists anticipate a quick recovery, the current landscape presents certain challenges for recent graduates. They’re entering a shaky job market, marked by record-high unemployment numbers, and facing a lot of uncertainty when it comes to their prospects. The unfriendly job market can mean fewer job opportunities and lower earning potential, which, in turn, could lead to problems when it comes to paying down their student debt. Some graduates have had their job offers rescinded due to the downturn, and others have found themselves moving back in with their parents.

All this raises a big question for parents: Should you consider financially helping your kid if they’re struggling after graduation? And if so, what would that help and support look like?

Start the conversation with your financial advisor

When kids struggle, most parents are going to want to help in any way they can. When it comes to providing financial help after college, the decision really depends on your child and their particular situation. There are a number of considerations for parents to think about before opening up their wallets.

Of course, one obvious and important question is: Can you afford to help? The answer is going to be different for every family, so starting that conversation with your personal financial advisor is a good first step. They could help assess your finances and see whether you’re in a position to help. And if you are, your advisor might be able to offer some suggestions on how you could provide that assistance or even help you come up with a financial plan for your child during their transition period (e.g., setting goals, creating a budget, etc.).

This kind of personalized financial assessment is critical because you don’t want to jeopardize your own financial future while trying to help your child contend with their post-graduation challenges.

Putting yourself first

This might sound counterintuitive when we’re talking about helping our children, given that most of the time we tend to put their needs ahead of ours.

Putting yourself first in this instance doesn’t mean you shouldn’t provide help or support at all. Rather, it’s a reminder for you to make sure you’re providing that help and support in a smart way, so that you’re not putting your own financial security at risk. In other words, don’t let your desire to help derail your own financial plans (e.g., retirement).

Help and support can come in many different forms. For parents, it’s important to decide what that assistance will entail. Sure, more often than not, money is involved. But beyond just simply depositing money into an account, here are three meaningful ways you could help your kids with their post-graduation challenges.

1. Encourage your kid to create a financial plan

We have all probably lectured our kids at some point about how “money doesn’t grow on trees” and “there’s no such thing as a free lunch.” As they deal with the transition of life after college, this is a good opportunity to drive home the importance of financial planning.

One of the best gifts you can give a graduate is a financial plan. Think about scheduling an introductory meeting between your financial planner and your child. In this setting, your child could get some advice directly from a professional (so it doesn’t sound like just another lecture about money from you).

Your advisor could help facilitate your conversations about any of the following topics:

  • The basics of budgeting and goal-setting
  • Now vs. later thinking
  • How tradeoffs are sometimes necessary to help you reach your goals
  • Establishing and maintaining good credit
  • Savings vs. investing (and why it’s important to start early)
  • The need to look at the big picture when it comes to financial life management

The purpose of encouraging this discussion between your child and your advisor is about teaching your kid how to manage finances in a responsible manner and set realistic expectations when it comes to money. For some folks, talking about money can be uncomfortable and emotionally triggering. This is where a financial advisor could be helpful, stepping in as a mediator between parent and child when it comes to having an honest conversation about money – specifically, the expectations of what parental “help and support” may or may not include.

2. Set expectations and boundaries

Setting expectations and boundaries is about laying down some ground rules for your financial support. For example, what kind of expenses are you willing and not willing to help with? How long do you plan on providing that support? What are your expectations in exchange for the financial help you’re providing? In short, what are your terms?

This is when you may also want to talk about establishing a timeline for certain goals, such as securing a job or finding an apartment and moving out of the house. Your financial advisor could help put your expectations in writing, so that there won’t be any misunderstandings down the road between you and your child.

The point here isn’t to make your kid feel indebted to you. And it’s not necessarily about tough love. Think about it this way: When you set clear expectations and boundaries with them, you’re proactively working to set routines and build successful habits (financial or non-financial), so that they could successfully get through this transition period (which can be a challenging situation for all involved). But every challenge is also an opportunity. If you and your child tackle this transition with a growth mindset, both of you could come out of this experience for the better, in terms of personal growth.

Now, what kind of expectations are we talking about? This depends on your and your child’s particular situation.

For example, if they’re living with you during the transition period, perhaps, you may expect them to cook dinner a few times a week.

Or while they’re looking to land their first job, you may expect them to dedicate a certain amount of time to networking each week. Or maybe even take on a part-time job, so that they could save up for their eventual move.

If they need a loan, say to move to another city with better job opportunities, you could ask for a promissory note. Whether or not you really expect them to pay it back is up to you, but the idea here is to help them understand that, well, there is no such thing as a free lunch in the real world.

3. Foster financial independence

Some kids might prickle at the thought of parents qualifying their help and support with terms and conditions. So it’s important to communicate honestly and help them understand why it’s necessary.

Yes, one reason is so that you don’t end up jeopardizing your own financial security, but the other goal here is to instill certain values of financial responsibility in your child and help set them on a path towards financial independence.

Having them sit down with a financial advisor and setting expectations isn’t about wanting or not wanting to help. It’s about finding a way to make your help really count for something. Giving your money over freely without question might seem like the easy thing to do up front, but consider whether you might be creating an unhealthy sense of financial dependency in the long run.

As parents we want our kids to do well in life, and part of that means helping them to achieve financial independence. Help your child understand the power that lies in financial freedom – of having clarity, control and confidence over their financial life.

Most importantly, you’re doing all this because you believe in them – that they can successfully navigate this phase of their life and come out better on the other side.

Rosener
ABOUT THE AUTHOR

Jason Rosener, CFP®

United Capital Financial Advisers, LLC d/b/a Goldman Sachs Personal Financial Management (“GS PFM”) is a registered investment adviser and an affiliate of Goldman Sachs & Co. LLC and subsidiary of The Goldman Sachs Group, Inc., a worldwide, full-service investment banking, broker-dealer, asset management, and financial services organization.

The information contained herein is intended for informational purposes only, is not a recommendation to buy or sell any securities, and should not be considered investment advice. GS PFM does not provide legal, tax, or accounting advice. Clients should obtain their own independent legal, tax, or accounting advice based on their particular circumstances. Please contact your financial adviser with questions about your specific needs and circumstances.

Information and opinions expressed by individuals other than GS PFM employees do not necessarily reflect the view of GS PFM. Information and opinions expressed in this article are as of the date of this material only and subject to change without notice.