She adds that raising adults who take responsibility is the goal because that time period between ages 18 and 22 is when you should be cutting the cord on most financial responsibilities.
"Giving teenagers access to your credit card sounds counterintuitive, but avoiding the topic is a horribly misguided approach to teaching kids how to use credit and achieve a good credit score," says John Ulzheimer, president of consumer education at SmartCredit.com. "You have to assume they will use a credit card, so teach them how to use it sooner rather than later. Adding your older teen to your credit card account is the equivalent of driver's ed and a learner's permit when it comes to credit usage," he says.
Ulzheimer and Kay agree on never co-signing for loans or credit cards for your kids, no matter what age. "If you co-sign, they control the card or loan but you have equal debt liability if an account defaults. It puts your own debt-to-income ratio and credit score at risk," says Ulzheimer.
Kay says, "The baby boomer trend is to bail out their adult kids repeatedly, which deteriorates parents' own wealth and retirement."
When to cut the cord
A "boomerang kid" is an adult child who returns to live at home again later in life."When a boomerang fails to launch or refuses to leave home, you've got to cut that cord," says Kay. "Make it as uncomfortable as possible for that adult child to live at home. Instead of feathering the nest, add a few pine cones to make leaving the nest seem more attractive -- and then they will fly."
When to start cutting the financial cord:
- Start cutting the financial cord early. If your young child wants designer duds or a fancy gaming system, have him or her earn it by doing chores around the house and saving money from birthdays and events.
- By age 16, expect your kid to work for you with chores or at a part-time job. He or she can use this money to pay for a cellphone bill, a portion of car insurance and gas on your car, and as savings for his or her own car if he or she is driving.
- If kids are living at home at age 18 and older and are not in school, they should be paying rent -- barring a tragedy or extenuating circumstances. Try to make the situation temporary by increasing the rent every three months or so they're still living at home. A written, well-planned exit strategy is your best friend when it comes to a grown child asking to live at home.
When to stay connected a little while longer:
- If a college student wants his own credit card, keep him as an authorized user on your card while teaching him sound credit principles until he is 21. New credit card rules make it difficult for those younger than 21 to get their own credit cards without their own income or assets.
- If your adult child needs help with health insurance, keep him or her on your plan as long as it's financially feasible for you. President Barack Obama's Health Care Reform/Affordable Care Act allows children to remain covered under a parent's health insurance until age 26.