First Step to Financially Independent Offspring: Create a Family Council

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As you weigh whether you’re ready for retirement, it’s important to consider a potential roadblock that could delay your plans: your children.

More than one-third of baby boomers provide financial assistance to their kids or other family members, even if it means putting off retirement to do so, according to a study by research and consulting firm Hearts & Wallets.

That’s in part because more young adults are waiting longer to start their own households. Despite improvements in the job market, young adults ages 25 to 34 are less likely to live independently than during the height of the financial crisis, a recent study by Pew Research shows.

What’s more, research by the Global Financial Literacy Excellence Center shows  millennials face a serious financial literacy gap. This has led to a prevalence of high-interest debt, and fewer turn to professional advisors for help.

But ignorance about finances among millennials should come as no surprise: Only 17 states require high school students to take a personal finance course (or require personal finance to be included in economics or civics courses) to graduate, according to the Council for Economic Education. And only six states require that students be tested for personal finance knowledge.

Start a family council

If your children are to succeed, it’s up to you to educate them about money management. Parents must be deliberate about teaching their kids how to handle their finances. As financial advisors, one tool we promote in our practice is the family council.

A family council lets you keep family business conversations separate from family social events. Setting aside an official time encourages a more formal and orderly approach to discussions. It can also keep heavy topics from weighing down occasions such as Thanksgiving dinner or the Fourth of July barbecue.

Transparency around family finances can help stave off fears and disappointments that can impair family harmony. Even young children can benefit from seeing how big decisions get made, such as where the family will vacation next year and how you’ll pay for it.

When children attend regular family meetings to talk about money, problem solving and planning, it will become a habit for them — one they’ll carry into their adult lives and pass on to their own children.

How the family council works

A family council should set an atmosphere in which everyone is professional and courteous, even when making difficult decisions.

Once your family decides to set up a family council, draft a family charter. This charter should define the purpose and vision of your family council, lay out your family’s financial objectives and detail the core values you want to communicate to the next generation. The charter helps clarify for everyone what should be on the agenda for each meeting.

Topics to cover include:

  • Budgeting
  • Family decisions
  • Upcoming purchases
  • Travel plans
  • Charitable giving
  • Volunteer activities
  • Investing
  • Insurance

Family councils vary as widely as the families who hold them. Yours will vary based on a lot of factors, including how significant your family assets are, whether you have a family business, your children’s ages and whether you’re caring for aging parents. For families with grown children or kids who are approaching adulthood, we suggest explaining the concept of your estate plan as generally or as specifically as is appropriate.

Set the stage for financial independence

As with everything else, your kids’ personalities will affect how things work. My younger child is already working during the summer and has gotten the spark of motivation to save up for things she wants, such as buying a car.

My older child has been much more laid back about everything in his life, including moving out of the house. For him, what worked was less carrot and more stick: I gave him an ultimatum that he could stay at home and attend junior college; stay at home, work full time and pay rent; or move out. He chose going to junior college and is starting to take on more responsibilities as he sees his peers do so as well.

How you communicate with your family about finances plays a big role in whether you can achieve your financial goals. Starting a family council is an excellent way to get your children involved early and to address the major issues that affect your family.

Our firm, Mosaic Financial Partners, has put together a free guide that walks through these communication issues and other often-overlooked factors that affect your family’s sense of financial security.

This article also appears on NerdWallet.

By Mary Ballin
Learn more about Mary at NerdWallet’s Ask an Advisor

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

This article appears in: Personal Finance , Wealth Management , Millennials , Retirement

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