When to cut the financial cord on your kids

Raise kids that launch
By Jean Chatzky

You or someone you know probably has an adult child living at home. According to Pew Research Center analysis of U.S. Census Bureau data, the number of young adults living at home rose to 36 percent in 2012.

This begs the question for parents who think kids should live their own lives at some point: When should you cut the financial cord?

Start early

Children should begin earning for themselves at an early age by contributing to household chores and taking on extra tasks to earn cash, says family finance expert Ellie Kay. Make sure children understand their responsibilities, and contributions will increase as they get older.

"If you set a precedent that you will just hand over cash every time kids ask, the problem can exacerbate as adult financial responsibilities and mistakes take over," she says.

David Bakke, a personal finance reporter, says his parents gave him the rule that if he wanted to buy something, he had to earn the money to pay for it. Today, he says it's "one of the best things my parents did for me."

This system also applied to Andrew Schrage, one of Bakke's reporting colleagues. Schrage's parents made him save up for a car as a teen. "Although, they did sell me one of their old cars at a significantly reduced rate and (paid) for my auto insurance into my late teens," he says.

Kay agrees that if a teen wants to drive, he or she should pay for his or her own car. She also thinks teens should be required to pay for a portion of their auto insurance, so they appreciate what it costs.

The entitlement generation

Entitlement is especially prevalent in kids today who did not earn their own way in and have no idea what items cost, Kay says.

"As parents, we owe our children food, clothing, health care and shelter, not fun with friends, designer clothing, cellphones with data plans, a car or a party-school college experience," Kay says. "If kids want those things, they need to earn it for themselves. Otherwise, they feel entitled instead of appreciative."

She emphasizes that when kids work for things, they value them more. And this includes a college education.

Students who choose to work a moderate amount toward their college expenses often do better academically, according to the nonprofit College Board. Eighty-five percent of first-time, full-time undergraduate college students received some type of financial aid from academic years 2006-07 to 2010-11, according to the National Center for Education Statistics.


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