Parents Help Millennials More by Cutting Financial Cords, SunTrust Study Says
Posted By Terri Williams on July 20, 2016 at 12:51 pm
While millennials frequently claim their independence from societal conventions, many remain financially dependent on their parents. That’s understandable. This generation faced and faces skyrocketing college costs. Furthermore, when millennials leave school, they’re entering a competitive job market. As a result, many college graduates are working part-time or temporary jobs, or they’re merely earning entry-level wages.
Then there’s the burden of student loan debt, which is causing many grads to rethink or postpone major life decisions, including when they’ll get married or purchase a home.
However, some millennials may struggle to cover even basic necessities. According to the SunTrust 2016 National Financial Confidence Survey, 25% of Millennials receive some form of financial assistance from their parents.
The top five bills that parents help millennials to pay:
While this assistance may help their kids, the survey reveals that 47% of parents are stressed out trying to help their kids financially. GoodCall spoke with two experts on the importance of millennials becoming financially independent and cutting financial cords.
Why cutting financial cords can help
Brian Nelson Ford, one of SunTrust’s financial well-being executives, admits that many millennials are saddled with student loan debt, but he refutes the theory that debt or insufficient income is the reason they’re receiving assistance. “They are making a decision that anybody of any age would make: they are accepting financial support that’s offered to them,” Ford says.
Parents need to determine whether millennial children truly need financial help or whether they simply are demonstrating a lack of money management skills. “When you don’t understand how to budget, save and invest—and your parents are willing to step in and help fill the gap—dependence is often the result.”
Many millennials believe their youth gives them plenty of time to prepare for the future, and Ford says this can create a false sense of security. “Adults who are still financially dependent on their parents are probably not as focused on their long-term financial well-being, like paying down debt, saving for a home or putting money aside for retirement.” But time can creep on them, and Ford warns that a lot of people reach the age of 40 without any significant savings.
“Millennials who cut the financial cord are forced to take stock of where they are financially and make adjustments that are ultimately good for them.” Without a financial safety net, Ford says, they are more likely to become disciplined and strategic as it relates to both spending and saving money.” And, he adds, “That’s a win-win for millennials and their parents.”
What can millennials do to become more self-sufficient?
The SunTrust survey lists four ways that millennials can develop financial independence, regardless of whether parents agree with cutting financial cords:
- Track spending
- Set savings goals
- Develop a credit history
- Start investing now
GoodCall asked CPA Sean Stein Smith of the American Institute of CPAs National Financial Literacy Commission to provide additional details on each point.
Smith says the ability to effectively track spending is a foundational step on the path to saving money and increasing financial independence. “Building a healthy financial life is partially about how much you earn, but it also about what you spend your earnings on, and people are often surprised to find out where their money is going.”
Since millennials are a tech-savvy generation, Smith says they can easily utilize mobile saving and budgeting tools. “Many such tools also have the ability to send you real-time notifications on your spending, which is also a great anti-fraud feature.”
Set savings goals
Setting realistic goals makes can make it easier to remain focused. “From making a plan to exercise more, eat better, or start saving more money, setting a realistic goal that you can track is an excellent step toward turning your goals into reality.”
As with tracking spending, convenient apps and tools are available, Smith says. “Or, if you are not comfortable doing everything on your phone, most banks will redirect a percentage of your direct deposit to an additional savings account free of charge.”
Develop a credit history
Smith acknowledges obtaining credit can be a tricky subject, especially for students who have student debt and are subject to an uncertain job market. “One approach to take with building credit is to use certain credit cards for certain items, like a gym membership, cellphone bill or other recurring charges since this simultaneously helps you build credit without building up a balance that is too much to handle.” He says millennials can research cards that offer specific and relevant perks while also helping them to build a credit history.
Start investing now
Investing is a key component in building a solid financial future, but some millennials mistakenly believe that it requires large sums of money and they’re also overwhelmed by the whole process. Smith recommends that millennials start with whatever amount they’re comfortable with and notes that the process may be easier than they think. “Whether it is via mobile apps or product offerings from traditional brokerage houses, financial advisors are increasingly opening up to the technology-first preferences of millennial investors.”
He also advises millennials to take advantage of plans offered at work. “Automating your investing with a 401(k) or other equivalent plan from your employer also represents a way to start investing for your future without the sticker shock that sometimes scares people away.”