Saturday, September 29, 2012

Guiding your Recently Graduated Kids through Debt Management

debt (Photo credit: Alan Cleaver)
If there's one thing that we adults have learned as we approach retirement is that the world is not a secure place, no matter how hard you've tried to make it so. Living a debt-free life in America is—though not impossible—very difficult, and more and more people have realized that their debts can seriously hamper their ability to get what they want in life. Debt can make it difficult to have a stable marriage, to buy a house, or to relocate. Debt can also stop you from retiring when you are ready, and it can keep you from pursuing more education. Even if you've handled your debts wisely, it's very important to pass this knowledge on to our children. If you have children who are now adults and out on their own, here's how to guide them through a financially responsible life: 

1. Encourage them to pay back their student loans as aggressively as they are able.

Hopefully, your children's only debts after graduating from college are student loans. While this was the case with me and my siblings, many of my recently graduated friends had mountains of credit debt as well. Regardless of your child's debts after graduating, it's important to emphasize to your children to the need to start paying loans back as soon as they find work. Most young professionals will only pay monthly minimums for years before they realize that they could have paid much of their debt off a lot faster had they simply pitched in a little more every month.

2. Help them develop a budget for living expenses.

While budgeting may come second nature to you, it's often tough for young adults who are doing it for the first time. Sit down with your adult children and talk about ways that they can implement a reasonable budget on their expenses, including separate budgets for food, rent, entertainment, and savings.

3. Do not pay back their loans for them, especially if it means sacrificing your retirement savings.

One of the most tempting things parents usually want to do for their children is to pay back their loans. Of course, if, like many young adults in America, your child cannot find a job and is completely unable to pay back their debts, there's nothing wrong with stepping in and helping a little bit. At the same time, however, it's important to understand that we much continue to teach our children lessons even as adults. And one of the most important lessons that many people take their entire lifetimes to learn is personal responsibility. Of course, advise them on how they should manage their debt, but leave the actual repayment up to them. Don’t risk your retirement savings just to coddle your kids.

4. Talk to them about the importance of starting an emergency fund.

It's quite astounding to read the statistics concerning the percentage of people who have absolutely no emergency fund. Of course, it's hard to establish an emergency fund when you're busy paying off debts. Still, once your child has learned to manage her debt and budget correctly, encourage her to start an emergency fund that can pay for six months' worth of living expenses. Most financial advisers recommend having a fund that covers at least six months and as much as a year, especially in an uncertain economic climate.

At some point, of course, there isn't much that we can do when our kids are all grown up. At the same time, however, you'll be their parents forever, and they still will look to you for advice. Offering sound financial advice is perhaps the most important advice we can give. Good luck!

Mariana Ashley is a freelance education writer who also writes about parenting, personal finance, and small business strategies. She has an especial interest in online education, particularly online colleges in Arkansas. Please feel free to contact Mariana at

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