Helping Adult Children with Finances – Episode 574

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[00:01] Welcome to the Prosperity Podcast. Prosperity thinkers, welcome to the podcast. Today we’re gonna be talking about helping your adult children with finances and know that does not mean writing checks and paying bills, that means actually coaching them and helping them with finances. Kim, when we discussed this topic at the very beginning, you lit up because this is something that you have helped a lot of families and you’ve gone through personally. So let’s take it away. Oh, such a fun subject. And frankly, this literally needs to start when the kid is like six to 12 months old. Like, I’m not kidding because there’s discipline elements that you can install in their life as a baby that will absolutely contribute to them

[00:52] as a functioning young child and then also as a functioning adult. Nevertheless, we’ll keep it focused on the, shall we say, 18 and up crowd today. When you think about that type of person, this kid, we’ll just call them adult kids, is ready to be freed of parental anything. Really, right? They just go through that phase, that 18 to maybe 25. Not all kids do it, the ages are different, but they just go through a phase where they frankly really don’t wanna take anything from you. So it’s super important to make any conversation that’s going on very fun, game oriented, even if you can, like contests or they can compete even with themselves or why don’t you try having a conversation with your friends and see if it goes different

[01:45] than the conversation you’re having with me, like anything like that to just spark a little bit of interest. I also find the very first paycheck is a really handy conversation point because what happens, right? People that are young kind of know about taxes. They kind of know about the various benefits maybe that are gonna be taken out of their income, but holy cow, when they see it, it’s like, who’s FICA? Why is he on my paycheck? What, disability insurance costs that much? What do you mean I have to pay federal, state, local, et cetera, taxes? So to this degree, right? They might not have had a sense of it. So that’s always a really good time. And then I have some specific suggestions for things that we might help them start.

[02:37] So I will cover those in a moment, but Spencer, you’ve had some experience with this too. Anything you wanna add? Yeah, you know, having a child go from 17 to 18, that’s where I am right now. I vividly remember the conversation and it went down like this. We were in a Costco and it was me and my two sons. And this is gonna sound strange of all places eating a $1.50 hot dog, but this is what it did. And my youngest son saw grandparents with their grandkids and he goes, dad, if my kids are out of control, you can parent them, that’s okay. And I said, oh no, that’s your job. I said, and even I said, you’ll notice that I am having a different relationship with our son now that’s 18. I said, because he’s an adult.

[03:30] And so there’s less of me putting up a giant amount of bumpers and saying, okay, let’s correct this, let’s correct this. Now we’re slowly correcting because I wanna have a long-term relationship with him. And so I think first is a lot of parents, they forget to even establish that trust to the relationship with their kids and they can’t even talk about finances. Wow, so how did you establish that so that you can even get to having those conversations? Well, it does truly start at very young ages where you’re having conversations about maybe the child that’s going to a birthday party and the payment of money for a gift, or maybe as an example, you encourage them to make a gift because they’re not earning money right now.

[04:19] And it progresses up. We have actually an entire prosperity parents curriculum that we help parents start when those children are super young and progress so that you’re not hitting the conversation cold when they’re 18 or maybe 15 or something like that where it might typically come up. Nevertheless, just keeping the conversation to the older children at this point, let’s pretend you haven’t brought it up until now and they’re 15, 18, 22, 24, whatever. And you’re feeling like conversations need to start, then you can just apologize for that. You know, and I think it’s really good when you are in that space with that adult child that’s not sure they really wanna listen to you, if you will show humility,

[05:09] if you will possibly even show vulnerability and you might say something like, hey, I don’t feel like I have this totally figured out, but I did learn a few things along the way around personal finance and I’d really like to share them with you, you know, when’s a good time. And then you treat it as a discussion that is handled like you would a friend or a peer. And so these are the specific things that I think should be handled at that stage. Absolute number one is the concept of saving first or paying yourself first or investing in yourself because those kids are gonna get out there with the credit cards and the world at large and they are hounded on with advertising and companies that want to take their money from them

[05:54] for the various goods and services that they provide. And they may have many friends that are out there, some of them unfortunately with daddy’s credit card and they’re gonna start to see all kinds of different lifestyles that they’ll actually pay attention to. You know, so and so drives this car and gets to go on this kind of vacation versus somebody else that has to work all day and has no time and no money either because they’re required to pay their own expenses or whatever the situation is, they’re gonna start to see those differences. And so they may come to you and that’s a absolute first thing that you can recommend is pay yourself first or whatever other language, save first, invest in yourself,

[06:31] those are all indicating the same kind of things. And we have a structure because automating anything around personal finance is super helpful. So we have a structure that really supports that and if anybody’s interested, if you have a young adult child and they have a job, so obviously there are some 18 year olds that are not in college or maybe they’re in college part-time, they have pretty decent work, please introduce them to us via email, hello at prosperitythinkers.com, that’s special for our podcast listeners. Introduce them to us, we will invite them into our structure that really facilitates and motivates that save first space. And then I’ve got two other quick suggestions, they’re gonna be dealing with car insurance

[07:15] at some point, now maybe they’re all Uber and they don’t have to deal with it yet or maybe whatever the other circumstances are, but once the door for insurance opens, I think it’s really wise to have a discussion around every kind of insurance out there. So that means car renters or home insurance, life insurance, disability insurance, health insurance, like that discussion really needs to happen. And then the third thing that I’m gonna recommend and this is, it could be perceived morbid, but this is just absolute protection for both you as the parent and your adult child. And that is please, the day they turn 18, if you haven’t done it and they’re 25, please still go do this. And that’s to get a medical power of attorney

[08:06] because if they should get in an accident, you as their parent, if they are over 18, have no ability to step in and ask for anything, get information, provide recommendations. If the accident was severe, you cannot make the decisions that need to be made, et cetera. So medical power of attorney, something that you can get online, you can get it at your local hospital. There’s a lot of attorneys, of course, that would do that. I’ve encouraged kids to go so far as get a will, but at a minimum, the medical power of attorney and living will like pull the plug if they are completely abled and probably wouldn’t live. That whole space is very important. I never even considered the medical power of attorney.

[08:52] That is something that I didn’t even think about. And I have a son that just turned 18, like a month and a half ago. And I’m thinking, all right, well, I gotta get that one done right away. Yep, absolutely. I know about it because I had a situation where a mom had a daughter get in a car accident and thankfully she was not severely injured, but she was injured enough that the mom flew to the hospital and wanted to help and make some decisions, et cetera. Couldn’t do a thing. Couldn’t do anything other than sit there and hold her daughter’s hand. Wow, wow. Okay, so let’s take the hold the hand and let’s be responsible parents. Not holding the hand and paying their credit card bills when they mess up.

[09:38] Not holding the hand and taking care of them and coddling and being helicopter parents, but holding the hand as a coach. What are a couple of things that we can get the parents to do that maybe have a kid out of high school but not yet married? Let’s take that little category. Sure, well, I think even at that stage, the things that I mentioned are relevant. So in addition to those three, so save first, look at all the insurances and get the medical power of attorney. There can be fabulous conversations around something like interest rates. So I have a book called Busting the Interest Rates Lies. And it takes, it’s a story of a kid in high school that then progresses into work and into an inheritance.

[10:31] And it does a lot of discussion around 15 to 30-year mortgages, but that specific example is a very good discussion to elaborate on interest rates as a whole, because as human beings, in fact, many adults do not understand really how interest rates work. I’ll give you a quick example. Many people feel like if you could borrow money at 4%, let’s say you could get a bank loan or a life insurance cash value loan at 4%, and you can invest at 5%, they think that is only a 1% differential. And it clearly is a 1% spread, five minus four. However, that is a 25% differential. And all you have to do is put money through the interest rates in order to get the clarity. So if you took $100,000 and you looked at a 4% debt,

[11:28] then you would have a $4,000 interest loan for that 4% that you borrowed. And then you took that same 100,000 and invested at 5%, you would have 5,000, and then you run that, and here’s the hard part, through a financial calculator. If you’re gonna talk about interest rates, this is where you need to get either on truthconcepts.com and get the free downloads so you can get the financial calculators for free. Anybody can do this. Or you need to have an HP12C, or you need to have a financial calculator on your phone, not a simple calculator, because you would put four in the present value, five in the future value, one in the timeframe, and ask for the rate, and it would tell you 25%. So interest rates, very critical thing to discuss.

[12:14] And then I have one more real quick, and that’s also around interest rates and averages. I just saw a comment on a video the other day. Well, if I could get an average of 10%, I would da-da-da-da-da. The problem is us human beings with our money do not get averages, because dollars, money, is going through, let’s just say it’s an index fund, for example, the up and down and up and down nature of that index fund’s growth and shrink and grow and shrink and grow and shrink roller coaster ride. Well, there’s a mathematical average, and it’s accurate, right? You add up all the years, you divide by the number of years that you added up, and that’s mathematically correct. But it’s financially horribly wrong,

[13:07] because what you have to do is take your 10,000 that you put in, or one million, or whatever your numbers are, or maybe you’re putting money in monthly, which is called dollar cost averaging, and you have to look at the actual dollars that grew, and then the actual dollars that shrunk, and the actual dollars that grew, and the actual dollars that shrunk. And just as a quick example, you might have a mathematical average of 9%, let’s say, of your index fund, but your actual rate of return might be as low as six, and then, of course, you have to take taxes off of that. So it might be as low as five or even four. People do not understand that distinction. So that’s a fabulous discussion to have with a child.

[13:49] Just make sure you got a calculator handy and some information about historical rates of returns per year, not just average. Okay. So I think for our listeners, I’m gonna assume that most of them have the savings down, or at least the knowledge of savings down. Just because you have the knowledge doesn’t mean that you’re taking the action, but hopefully they’re. And a lot of our listeners, one, the medical power of attorney, huge. Understanding the life, the insurances, being car insurance, health insurance, medical insurance, and life insurance, and everything else. And then the percentages, those feel like the simple yet cornerstone pieces if they get tackled correct. Now we’re gonna have the ambitious people

[14:40] that are gonna say, okay, what about the making money? So can you give us one little thing of where money could be put or money made or things of that nature? Sure. Well, it’s funny when you said making money, I immediately thought to the work that the person is gonna do, which is paramount. I mean, if you can just get a job that you like, which sometimes takes a little while, sometimes takes some experimenting and whatnot, that’s gonna make all the difference in the world because that drives everything else. But let’s look at some basic steps that people can take for investing after they have their emergency fund funded, right? So for a young adult, emergency fund is maybe five grand, 10 grand,

[15:23] something like that. In theory, it may already be funded because of summertime work as a teenager or maybe a grandpa says, hey, here’s 10 grand, your emergency is funded. Now you can go start investing. And so still, even with the word invest, I would encourage two basic places, which are boring, but they’re gonna do the job. And one is, yeah, go ahead and grab that index fund, you know, online or at Fidelity or Vanguard or wherever you like, just a basic index fund. And maybe you put a hundred bucks or 500 bucks or something like that in it per month. That’s a great start. That is investing. We could almost call it gambling as well, but nevertheless, that’s something that everybody wants to do.

[16:07] So fine, go do that, experience that for yourself. In addition, even for that young child, that young adult that has no responsibility, you know, other than rent and car payments maybe, I absolutely would recommend starting a life insurance policy. A whole life insurance policy that they can use the rest of their life for their opportunity fund. Notice I separated out the emergency fund in this case. And same deal. They can start that for 100, 200, 500 a month and get that foundation. Now I’m gonna use the word invest with that, even though I wouldn’t ever call life insurance and investment, I’m gonna use the verb invest because that is what they would be doing and it’s investing in themselves.

[16:53] And then the other thing is they should be having an eye for a down payment on a home. And there are home loans that you can get for only 3% down if you’re a first time home buyer. That’s a fabulous start. Now, if the person’s really into their career and just doesn’t wanna take on the obligation of a yard and some of that thing, a condo is fine or maybe you do rent for a while because you don’t know if you’re gonna stay in that area. Those are all acceptable steps as well. Nevertheless, the quicker you can get started on whole life insurance and the quicker you can get started on real estate ownership, the more stable your personal finances are gonna be going forward. Kim, this is solid advice.

[17:31] One thing that I’m looking at and I’m taking, I took notes here because I have a son that’s now 18. He has some of these pieces in place and what he needs is additional insight on the credit cards and that’s one thing that we did is we added him as an authorized user on a card and that was a good first step. And then for him, he’s not in a position where he wants or needs to be getting loans and he’s building up the income and has the life insurance policy. And I think one of the hardest things to teach an 18-year-old is to be patient, develop the principles and have it to that. Kim, this was really good framework for all of our parents and any of you listeners that are 18 and above, great foundation to start.

[18:21] If you’re in that category, send an email to helloatprosperitythinkers.com, special email just for podcast listeners and you can get specific advice and guidance on things that’ll work for you in your situation because if you’re making thousands a month at 18 or tens of thousands or hundreds of thousands a month, the playbook, the principles will be the same, the playbook might just adjust a little bit. So Kim, very good, thank you. You’re welcome. Thank you for listening to the Prosperity Podcast. To take control of your money and have it work for you, visit ProsperityThinkers.com.