For so many parents, watching their children grow into blossoming young adults with new passions, goals, and a sense of independence is incredibly rewarding. At the same time, this may be uncharted territory for your family, a stage of life that hasn’t yet been traversed.
Most young adults or teens aren’t quite ready to fly the nest completely, even if they move out of the home and off to college or to an apartment of their own. They still often rely on their parents to help with some financial support.
And as for you, a child leaving the home or gaining some independence can have major ramifications on the family’s cash flow, goals, and general financial direction.
Let’s look at some of the top financial considerations families face as their children become more independent.
Your Household Finances Will Probably Change
As your child grows and gains his or her independence, your family’s finances will likely experience a shift.
Once they become college-bound, for example, you are likely done contributing to a 529 plan. When the time comes for their first job or internship, they may also be able to take on more financial responsibilities including rent, car payments, insurances, cell phone bills, or other discretionary expenses you previously covered.
Overall, you may have more breathing room in your cash flow each month and should consider the best plan of action for using it effectively.
For example, should you…
- Direct more into your retirement accounts?
- Put extra payments towards your mortgage?
- Create a “rainy day” fund for your child?
- Pursue a new business or investment opportunity?
Consider your financial priorities and goals and discuss your options with your advisor.
It’s also worth noting here that just because a child moves out of the house or becomes a legal adult doesn’t mean you’ll never spend a dime on them again. For many families, it’s quite the opposite in fact. From family vacations to future weddings, graduation celebrations, or even a down payment on a house, many families find great fulfillment in sharing their financial resources with their children well into adulthood. Therefore, that new found cash flow may be soon put to use on these various adult child goals and expenditures.
How Much Financial Support Is Appropriate?
The idea of providing financial support for your young adult can look different for everyone.
Not only does it refer to the actual transfer of money into your child’s wallet or checking account, but it could also look like:
- Giving them access to your credit card
- Providing housing, food or groceries, paying all utilities, etc.
- Paying down debt on their behalf (student loans, a car payment, etc.)
- Hiring them as part of the family business
No exact dollar amount is considered “appropriate” or “too much” when it comes to providing financial support for your child. Rather, you’ll want to consider a few key factors that will be unique to your family’s financial situation.
First, how does the financial support you’re providing impact your own financial well-being? Or more specifically, is it impeding your ability to make progress toward your financial goals?
You’ve heard the popular phrase on an airplane, “Put your own oxygen mask on before helping others.” If you’re sacrificing your financial well-being by giving too much to your children, the long-term impacts could be significant.
It’s also important for your child to learn how to (eventually) become an independent adult who is no longer financially dependent on you. There’s certainly no issue with helping them as you’re able now but consider doing so with a timeline or game plan in mind.
As you provide some assistance, talk to your child about the positive money habits you’ve developed over the years—or the things you wish you knew sooner (like contributing to a Roth account or avoiding high-interest debt). If you’re able, talk to them about their near-term and long-term plan. Discuss when may be a mutually appropriate time to start separating yourself financially from one another. A financial advisor can help facilitate these conversations or provide some resources and insights to keep the conversation positive and uplifting.
Should You Co-Sign for Your Child’s Loan?
Maybe they’re not in need of financial support, but they do need your credit history. It can be tough to get your first apartment or car with little to no credit history. If your child asks you to co-sign a loan or agreement, should you?
There’s no universal right or wrong answer. Rather, start your decision-making process by gathering the facts.
These should include:
- What the loan is for (a new credit card, car loan, student loans, mortgage, etc.)
- Length of the loan
- Interest rate and APR
- Repayment schedule
- Estimated payments
- How much money is being put down (if any)
When you cosign a loan, your own credit score (and collateral, potentially) are on the line—meaning this is a serious decision to make, no matter the size of the loan.
How Will You Handle the Worst Case Scenario?
Familiarize yourself with the terms and conditions and find out how involved you’ll be as a co-signer. For example, if your child forgets to pay or can’t make payments in a timely manner, do you as the cosigner get notified automatically? Do you get notified at all? Or will you only be involved once collectors come calling. Generally speaking, lenders aren’t required to keep cosigners in the loop, but you may be able to request statements or negotiate notifications in the event of missed payments.
If your child does fall behind or become incapable of paying back the loan, it’s also important to consider how you’ll treat the situation as a parent. Should you cover all costs and essentially “forgive” them of the loan? Or should you expect your child to pay you back, albeit on a more realistic and attainable repayment schedule?
Think About Why You’re Cosigning
Consider why you’re being asked to co-sign for the loan—this could be a good indicator of what to expect.
For example, most young adults and teens have very limited credit histories, meaning their credit scores may be low (even nonexistent). If your child is responsible enough but just hasn’t built up much of a credit score yet, you may feel completely comfortable cosigning a loan—especially if it helps them secure a better rate.
On the other hand, if they have a history of overextending their resources—or have missed payments in the past—the chances of future issues might be higher.
Talk to your financial advisor about the impact on your own credit score and financial security, especially if your child is looking to secure a large loan (like a mortgage or student loan).
It Might Be Time to Update Your Estate Plan
When your children were minors, it made sense to name an adult family member (such as your parents or siblings) as the executor of your estate—and likely as their guardian as well. But as your children grow into independent adults, it may eventually make sense to adjust your estate plan accordingly.
To better understand this transition, we interviewed David Feakes, founder and owner of The Parents Estate Planning Law Firm, PC. Attorney Feakes emphasizes that there is no one-size-fits-all approach to when children should step into roles like executor, power of attorney, or healthcare proxy. Some families, especially small families or those with immigrant backgrounds, may need to name their children as soon as they turn 18. However, many parents wait until their children are in their 20s, 30s, or even 40s, depending on family circumstances. If active grandparents or siblings are still involved, some parents delay the transition even longer.
One key consideration when updating your estate plan is protecting your children’s inheritance. Attorney Feakes notes that when children are minors, parents don’t have reason to worry about issues like creditors, divorce, or financial responsibility. However, once children become adults, these risks become real concerns. The estate planning focus for children shifts from guardianship when minors to protecting assets as adults to help safeguard an inheritance from unexpected financial or legal complications.
If you’re considering naming your child in an important role—such as executor, trustee, or health care proxy, or power of attorney, Attorney Feakes strongly recommends discussing these responsibilities with them beforehand. They should understand what’s involved and have the opportunity to decline if they’re not comfortable. Naming backups is also a good idea to ensure continuity if the first choice is unable or unwilling to serve. He also advises sharing copies of relevant documents with those appointed, including healthcare proxies and durable powers of attorney (DPOA), so they are prepared if and when the time comes.
When it comes to sharing information, transparency is key. While it’s not always necessary to share detailed inheritance plans with beneficiaries, Attorney Feakes suggests ensuring that those in key roles know where to find the full estate plan. Keeping these documents locked in a safe with an unknown code can cause unnecessary delays, so consider storing them somewhere accessible. Additionally, having an up-to-date asset inventory in your estate planning binder can help ensure nothing gets lost or forgotten over time. His firm includes an editable asset inventory in estate plans and advises clients to update and review it every three years.
Speaking of updates, Attorney Feakes strongly recommends reviewing your estate plan every three years. Life moves quickly, and changes in your family, financial situation, or estate laws—such as the Secure Act 2.0 or recent Massachusetts estate tax exemption updates—can impact your plan. Regular reviews help ensure your estate plan remains aligned with your wishes and provides the protection your family needs.
For parents of young adults, one commonly overlooked issue is the legal shift that happens when a child turns 18. Attorney Feakes warns that once a child reaches adulthood, parents are no longer automatically entitled to access their medical or financial information. Without a healthcare proxy and HIPAA authorization, you may not even be informed if your child is hospitalized. A durable power of attorney can also be invaluable for handling financial or legal matters if your child is incapacitated. At his firm, they proactively track clients’ children’s birthdays and send reminders as they approach 18 to ensure these critical documents are in place.
Feeling overwhelmed by estate planning decisions? It’s normal. Many people struggle with decision paralysis, especially when choosing fiduciaries or discussing plans with family members who may not see eye to eye. Attorney Feakes suggests that if you’re stuck, start with small steps—any plan is better than no plan. He reminds clients that a less-than-perfect plan is still better than having a judge make decisions for you
To learn more about the estate planning tools and documents we believe are essential for all high-net-worth families, check out our recent blog post here.
Help Set Your Child Up for Long-Term Financial Success
It’s incredibly rewarding to watch your child grow and gain their independence. As a parent, you want to do everything you can to support their journey, and that often means providing some supplemental financial support along the way. Similarly, this is an ideal time to help your child build the foundation for a lifetime of healthy financial habits, like saving early, building credit responsibly, and spending intentionally. Please click here to find our full list of what to consider as your child becomes independent.
If you have questions about supporting your child financially or helping them gain their independence as they enter adulthood, we encourage you to reach out to our team today. We look forward to learning more about your family’s values, goals, and concerns.
