Learn more about Mary and Ricci at NerdWallet’s Ask an Advisor
As you weigh whether you’re ready for retirement, it’s important to consider a potential roadblock that could delay your plans: your children.
More than one-third of baby boomers provide financial assistance to their kids or other family members, even if it means putting off retirement to do so, according to a study by research and consulting firm Hearts & Wallets.
That’s in part because more young adults are waiting longer to start their own households. Despite improvements in the job market, young adults ages 25 to 34 are less likely to live independently than during the height of the financial crisis, a recent study by Pew Research shows.
What’s more, research by the Global Financial Literacy Excellence Center shows millennials face a serious financial literacy gap. This has led to a prevalence of high-interest debt, and fewer turn to professional advisors for help.
But ignorance about finances among millennials should come as no surprise: Only 17 states require high school students to take a personal finance course (or require personal finance to be included in economics or civics courses) to graduate, according to the Council for Economic Education. And only six states require that students be tested for personal finance knowledge.
Start a family council
If your children are to succeed, it’s up to you to educate them about money management. Parents must be deliberate about teaching their kids how to handle their finances. As financial advisors, one tool we promote in our practice is the family council.
A family council lets you keep family business conversations separate from family social events. Setting aside an official time encourages a more formal and orderly approach to discussions. It can also keep heavy topics from weighing down occasions such as Thanksgiving dinner or the Fourth of July barbecue.
Transparency around family finances can help stave off fears and disappointments that can impair family harmony. Even young children can benefit from seeing how big decisions get made, such as where the family will vacation next year and how you’ll pay for it.
When children attend regular family meetings to talk about money, problem solving and planning, it will become a habit for them — one they’ll carry into their adult lives and pass on to their own children.
How the family council works
A family council should set an atmosphere in which everyone is professional and courteous, even when making difficult decisions.
Once your family decides to set up a family council, draft a family charter. This charter should define the purpose and vision of your family council, lay out your family’s financial objectives and detail the core values you want to communicate to the next generation. The charter helps clarify for everyone what should be on the agenda for each meeting.
Topics to cover include:
- Family decisions
- Upcoming purchases
- Travel plans
- Charitable giving
- Volunteer activities
Family councils vary as widely as the families who hold them. Yours will vary based on a lot of factors, including how significant your family assets are, whether you have a family business, your children’s ages and whether you’re caring for aging parents. For families with grown children or kids who are approaching adulthood, we suggest explaining the concept of your estate plan as generally or as specifically as is appropriate.
Set the stage for financial independence
As with everything else, your kids’ personalities will affect how things work. Some teens work during the summer and have the spark of motivation to save up for special things, such as a car.
Other youths are more laid back about everything in life, including moving out of the house. For those kids, what works may be less carrot and more stick: You may consider giving an ultimatum that he or she could stay at home and attend junior college; stay at home, work full time and pay rent; or move out. The hope is that they will choose to go to junior college and start to take on more responsibilities as they see their peers doing so.
How you communicate with your family about finances plays a big role in whether you can achieve your financial goals. Starting a family council is an excellent way to get your children involved early and to address the major issues that affect your family.
Image via iStock.