3 ways you may be stifling your child's financial independence
You're paying for your child's tuition, cellphone bill and rent, and he's an authorized user on your credit card. You're the one setting up job interviews or meeting with the landlord, and you're in charge of writing the monthly rent cheque. Does any of this sound familiar?
Parents coddle their kids in many different ways and that doesn't exclude their finances, says Alyson Schafer, a Canadian psychotherapist and parenting author.
"Helicopter parenting is when parents keep their children on a very short leash," Schafer says. "They're micromanaging their lives in a way that's not developmentally appropriate, they shoulder their burdens or clear the path of problems for them. It extends into all facets of life."
That includes financial maturity. Here are three major ways parents can stifle their children's financial independence, how each situation sets them back and how to productively cut off the hand-holding.
paying your child's way through school
Post-secondary school is expensive. The Canadian Federation of Students and Statisics Canada peg the cost of a 4-year degree at around $60,000.
Many parents worry about setting their kids on a path to debt, so they take on the bill rather than having their kid turn to student loans. Shelling out for textbooks, student residence fees and spending money while your child focuses on school may seem like good parenting, but your kids shouldn't coast through these years, which are imperative to learning how to manage money.
Solution: Set clear parameters and make your kids contribute. It's great to be able to help your kids out, but make sure they're putting in some effort, too, Schafer says.
"Your child should be looking at every grant and scholarship available to them instead of having Mom look after it," she says. You could also negotiate a dollar-for-dollar matching system - you match whatever funds your child earns . Tying your financial help to good grades is also a tactic worth considering.
And when you do pay up, trust your child to put the funds where they're intended to go. Yes, paying the school directly ensures that your money doesn't go toward nights out with friends, but you need to let your child learn how to manage his accounts on his own.
Pat White, executive director of Credit Counselling Canada, says that when her daughter started university, she handed over just enough cash to cover what was needed to settle in, but her daughter had to budget and make sacrifices to stretch every dollar.
"It gave her a chance to make decisions on her own and identify her needs and wants," White says.
not letting your child manage relationships, build financial history
Almost one in five Canadians between 30 to 33 years old still live with their parents, according to a Yconic/Abacus Data Survey of Canadian Millennials. Twenty-eight per cent of 25- to 29-year-olds in the study said their parents help them with bills.
The trouble is that if your child is living at home rent- and bill-free well into their 30s, they aren't building a credit history.
Your child will need this later on when he applies for a home loan, a car or credit. He won't have a trail of payments made on time, and he also won't understand the commitment involved in paying bills responsibly.
If you're the one brokering communication between your child and her landlord, student loans officer and employer, that isn't healthy, either.
Whenever your child needs to be accountable to others, he or she gets a healthy dose of the real world and professionalism. By building a rapport with these people, they may become useful references for future financial and career endeavours, White notes.
Solution: Gently wean them off the Bank of Mom and Dad and give according to your needs. You don't have to create a black-and-white scenario, Schafer says.
"It doesn't have to be all or nothing," she says. "You can have a shared family [cellphone] plan that's cheaper and you don't mind footing the bill."
But make sure your child is building and looking after her own financial history. If she doesn't have anything in her name, that can come back to haunt her when she needs to prove her credit-worthiness.
Volunteer to help your kids by looking over emails or contracts when they're dealing with a landlord or student lender, but don't be the sole communicator during these transactions.
A 2013 CIBC poll suggests that parents are delaying retirement or dipping into their savings to help their kids reach their financial goals. Be honest with what you can provide your kids.
"Show them what your mortgage costs and what utilities cost you," White says." You don't have to share how much you earn but it gives your kids a sense of what daily life costs."
You need to be forthright about when and how you're going to wean them off of your financial support, too. Give them notice so they can prepare, White says. It could be incremental, a touch-and-go feeling that you get based on how they're faring.
not letting your child fix their own mistakes
Perhaps your child is wading into debt or they've failed a course or two. It's almost instinctive to jump in and save your struggling child with a bailout, but try to advise instead of taking control.
"There are a million nuances to money and the only way for kids to learn is through contextual learning," Schafer says. "Give your kids an opportunity to make mistakes and improve themselves."
Solution: Offer advice but establish an exit strategy. Be realistic with your kids, and start an honest discussion about money at an early age, White says.
After that, you have to put faith in your child's abilities, Schafer says. That even applies if they come to you with hat in hand.
"Trust that they won't hit rock bottom and give them a vote of confidence," she says. "When you say, ‘I don't know, I'm sure you'll figure it out,' it's tough love, but it's saying, ‘I respect you enough to do this on your own.'"
"They're going to have a lot of money go through their hands in the course of their lives and they need to know they have good skills established," White says.
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