How Multigenerational Households Achieve Financial Independence Together

Special thanks go to Good Nelly for her guest post! –Kristen

The American Dream has changed slightly in the last few years. Rather than home ownership and a college education, the new dream is to be financially independent. The result: a significant percentage of millennials are moving back home with their parents or grandparents. As everyone struggles to meet their daily living needs, the situation is also creating the additional challenge of becoming financially independent.

Let’s have a look at a few statistics.

• As per the Pew Research Center Analysis of Census Bureau data in October 2019, only about 24% of young adults are financially independent as compared to 32% in 1980.
• About 45% of young adults (aged 18-29) have admitted that they’ve received financial help from their parents in the past year. About 59% of parents with adult children in the similar group have said that they’ve provided financial help.
• At least in this matter, the gender disparity is also insignificant. Both men and women have admitted that they receive financial help from their parents and grandparents.
• The dependency of young adults is more among the 18-22 age group than the 23-29 aged people.
• Mostly the young adults (about 60%) receive assistance from their parents and grandparents for meeting their daily necessities like paying bills or groceries. Only about 35% have said they required financial help to cope with medical bills.
• About 82% of parents love the idea of welcoming their children moving back to their parents’ homes after completion of college education.

However, there’s a different side of the story too.

A significant number of millennials are able to manage their money better than previous generations.

In a report published by the Bank of America in 2016, millennials could save more than their previous generations. Also, 46% of millennials had asked for a raise in the past 2 years and approximately 80% received the raise. In comparison, 39% of baby boomers and 36% of generation X employees had asked for a raise.

Along with it, the millennials were paying 39% more than the baby boomers, in more or less similar employment positions, to purchase a home.

With this range of earning, savings, and employment, what does it take to help parents, across all generations, as well as our adult children to manage money such that everyone can make their financial future secure and become financially independent?

For the parents:

• Pay yourself first and set priorities

As a parent, pay yourself first, yet don’t touch your retirement funds (unless you are making a contribution!) A common conundrum encountered by parents is the decision between saving for a child’s college and saving for retirement. However selfish it might appear to be, your financial stability should be the top priority.

There is no assurance that your children will look after you in your old age. The more you save and plan now, the better it will be for everyone’s future. Moreover, if one of your children do become your caregiver, this helps to relieve additional financial stress, thus helping to build their financial independence.

With these approaches, your financial future will be better secured and your adult children will have more opportunity to build their financial independence.

• Teach your kids how to manage money properly

By practicing money management, parents can better teach basic money management skills to their children. Begin doing so at an early age, and continue this practice with your grandchildren. It’s known that children learn mostly by imitating.

Regardless of the age of your children or grandchildren, encourage the little ones to earn money by doing small household chores and to save a certain amount from their earnings. This will help them learn the concept of saving.

For adult children, you can motivate them to learn to cook at home and do minor repair work. Get the whole family involved by making them family fun activities during the weekends. Learning basic skills can save a significant amount of your earnings, reduce expenses and maintain a budget. Additionally, cooking at home is a healthy habit too. This practice limits gas expense and cuts the food bill.

If your adult children have returned home, include them when planning the family budget. Take their suggestions, discuss, and explain to them when you’re making various financial decisions. Discuss and distinguish between needs and wants. The budget should be realistic for everyone so that each of you can work together to make it successful.

Also, set your financial goals and motivate your children to set their own financial goals. Then, plan the budget in such a way that everyone has the opportunity to attain them.

• Ask your children to take out a student loan

Even if you, the parent, can afford to pay for your child’s college education, suggest to your child to take out a student loan.

Instead of taking on additional debt or offering to co-sign, you can offer to help indirectly. Some ideas include paying for a tutor or buying books. Sometimes, paying for campus parking is a big opportunity to help!

While taking on a student loan can be uncomfortable and a bit frightening, this is an opportunity for your adult child to make one of their first major financial decisions. You can both learn from the loan application process and together work out a budget and non-co-signing methods to contribute. Don’t forget part-time work and side-gigs to save money and to pay back the student loan.

• Help your children to create a budget for their expenses

Just as stated previously, the budget is a smart way to help everyone learn and improve their financial habits and status. Even if money management has been challenging, learning together and helping each other, can result in a stronger understanding of money. Additionally, open conversations about money will help understand the differing generational needs as well as the opportunity to learn from one another.

• Create separate savings accounts

Saving money is tough when managing life and working toward financial independence. Each of us has our own goals and they differ among the generations. Living together is one aspect to assist with reaching financial independence, but the end result is to do so independently! Whether living in a multigenerational household or assisting one another with bills, it is vital to keep finances separate. What does each family member want? A college education? A home? A secure retirement fund? A new motorcycle? Whatever it is, create separate accounts for these items. Family members can encourage one another to contribute to their special accounts, but it is up to each individual to make those contributions.

Don’t forget the emergency fund! Even with budgeting, conversations, earning, separate savings accounts, and more, one thing common to all should be the emergency fund. As part of the family discussion, identify what expenses are a priority in an emergency and multiply by a minimum of 6 (months) to ensure there is enough. While emergencies, needs, and bills will be different, this is a safety net everyone in the family should not be without.

In conclusion, these tactics will help and motivate your children and grandchildren to become financially independent as fast as they can. The result: a secure financial future for everyone!

Author’s Bio: Good Nelly is a financial writer who lives in Milwaukee, Wisconsin. She has been associated with Debt Consolidation Care for a long time. Through her writings, she has inspired lots of people to overcome their debt problems and solve their finance-related queries. You can read her points of view on many financial websites and blogs. Follow her tweets to stay updated.