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What Can Royalty Teach Us About Family Finances?

It’s big news: Prince Harry and Meghan Markle are distancing themselves from the royal family, spending part of the year in North America and seeking to become financially independent. Of course, their situation is unique, but their decision nonetheless can be relevant to many of us – in particular to parents and grown children who must deal with questions of money, expectations, autonomy and family dynamics.

While these issues may be stressful, they can be worked out if you and your family members are willing to communicate and can show empathy for each other. To cite just one example, if you have young adult children, be aware that this age cohort faces some serious financial challenges. For one thing, the average amount of student loan debt per borrower is more than $35,000 (as of 2018), according to the Federal Reserve and Experian.1 At the same time, housing is expensive and real wage growth has been stagnant. Taken together, these factors point to the difficulties that young people face in their efforts to become self-sufficient, financially independent adults.

About two-third of “millennials” – the youngest of whom are about 24 – say that parents should contribute to the cost of college and allow their adult children to move back into their home if they have financial difficulties, according to a recent survey from the Society of Actuaries. However, millennials apparently are willing to reciprocate: 80% of them say that adult children should help their parents financially if there is a need, the same survey showed.2

So, given the above facts and feelings, what practical moves can you make to help create a positive financial relationship with your grown children? For starters, if they are living with you, consider the following steps:

  • Create a budget – and be fair. Some people require their young adult offspring to pay rent while living at home, to give them a greater sense of responsibility. However, others have determined that if their children can live at home rent-free, they can then be putting away much more money for either a down payment on their own house or to build a cash cushion to pay rent on an apartment. Whatever you decide, though, you’ll at least want to establish a budget that dictates who pays for what – groceries, streaming services, and so on.
  • Have an end date. Some families have no issue with parents and grown children sharing a home. Typically, though, one or both parties see this as only a temporary arrangement. If that’s true for you, it’s a good idea to establish an end date – a time by which your children are committed to moving out. Such a firm date will provide them with an incentive to save money for their next residence, and it may also give you some peace of mind. Of course, you may need to be flexible, especially if your children have trouble finding adequate employment or encounter downsizing or layoffs where they work.

And whether or not your children live with you, think about these suggestions:

  • Be “businesslike” about financial assistance. There’s certainly nothing wrong with helping your children out financially – but you can be “businesslike” about it. So, if your children ask for help with a down payment on a house or car, ask them to show a plan on how they’ll make the monthly payments. And it’s not selfish for you to think about how you can make financial gifts that can work to everyone’s advantage. You could, for example, give stocks to your children, a move that could help them and provide tax benefits for you.
  • Encourage your children to invest. Given the above-mentioned challenges of heavy student loan debt and expensive housing, it’s probably not surprising that many young people don’t place a high priority on saving for retirement. In fact, about 66% of those between the ages of 21 and 32 have nothing put away for retirement, according to the National Institute on Retirement Security, a non-profit research and education organization.3 Unfortunately, the later that individuals start saving and investing for retirement, the harder it will be for them to retire comfortably. So, do what you can to encourage your grown children to invest something – anything – in a retirement account. It really doesn’t take much to begin – many IRA plans allow contributions of as little as $50 per month. And if your children have a 401(k) or similar plan at work, urge them to contribute to it. In fact, a variety of financial moves for millennials are available.

Thus far, we’ve only discussed financial considerations associated with your grown children and their informal relationship with you. But if there’s a family business involved, you’ll have a different set of concerns. Not only must you work with your grown children on the day-to-day aspects of running the business, but you’ll also need to do some succession planning. You may well need to consult with your tax and legal advisors to set up a succession plan that’s appropriate for your needs.

Ultimately, both you and your adult children want what’s best for each other. So, be patient, be resilient – and be prepared. Contact an Edward Jones financial advisor to learn more strategies for achieving intergenerational financial harmony.

Important Information:

1 Student Loan Debt: 2019 Statistics and Outlook (www.investopedia.com/student-loan-debt-2019-statistics-any-outlook-4772007

2 Society of Actuaries: “ Financial Perspectives on Aging and Retirement Across the Generations” (https://www.soa.org/resources/research-reports/2018/financial-perspectives-aging-retirement/)

3 National Institute on Retirement Security: “New Research Finds 95 Percent of Millennials Not Saving Adequately for Retirement” (https://www.nirsonline.org/2018/02/new-research-finds-95-percent-of-millennials-not-saving-adequately-for-retirement/

More Resources:

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