Personal Finance

4 ways to sabotage your child's financial independence

It isn't unusual for parents to intervene with financial help when their kids are transitioning to adulthood. But pitching in too much could actually harm them in the long run.

In some arrangements, parents are covering their child's university costs, cellphone bills and even gas. They're the ones scouting out internships or calling landlords about their child's leaky roof. There's a line between helping and smothering, and parents often carry money to cross it, experts say.

"Helicopter parenting is micromanaging your kids to the extent where they don't have opportunities to make mistakes and learn from them," says Jayne Pearl, author of a series of financial parenting books called "Kids and Money." "Parents think they want to protect their kids from hardships, but you want them to organically face hurdles so they map out resolutions."

"It's financial enabling -- parents are supposed to nurture and take care of their kids," agrees Brad Klontz, an associate professor at Kansas State University and founder of Financial Psychology Institute, which trains therapists in the psychological aspects of money. "It's built into the psychology of parenting, but at some point you're disabling kids financially."

Here are four major ways parents may stifle their children's financial independence, how each situation sets them back and how to productively cut your kids off from the Bank of Mom and Dad.

Sabotage 1: You're giving your child a full ride on college expenses

Postsecondary education is the biggest expense your children will take on in their teens and 20s. Tuition fees differ depending on the type of school your child attends, but in the 2011-12 academic year, they ranged from $14,300 a year at state colleges to $37,800 for private universities, according to the U.S. Department of Education.

Your child could easily graduate with tens of thousands of dollars of student debt -- not the way you'd like to see him or her entering the real world.

It's second nature for parents to want to help with tuition, textbooks and residence fees, but experts say you should stop short of paying for everything. Now is not the time to hand out a free pass for this major milestone in your child's life. These are crucial years that test your child's ability to take initiative in the classroom, at work and with their money.

How to help without hurting: Your kids need to take the lead on crunching numbers for their school expenses. Put your child in charge of figuring out what a year of college will cost them, how much they'll make from a part-time job and whether they qualify for scholarships or financial aid. They might ask how much you can chip in or you could let them know how much financial support you're willing to shoulder as they figure out how to pay for their year ahead.

"Motivate them and give them incentives to do this," Pearl suggests. "You could offer to match a grant, or you'll kick in another $500 -- whatever you can afford -- for every scholarship they find."

While it's tempting to cover all expenses so your kids can focus solely on their education, they need to have some skin in the game, too. Make them responsible for something, even books or a monthly bus pass.

"They will have pride in their contribution, and they'll appreciate the value of their education more. Kids develop that sense of accomplishment and drive from this, which they will apply to others situations," Pearl says.

Sabotage 2: You're not helping your child build a credit history

Your child's credit history is crucial when he or she applies for a home loan, a car or even a job. "It's important to establish credit and it's important to establish this early, from 18 to 21," according to Bruce McClary, spokesman for the National Foundation for Credit Counseling.

Some parents make their kids authorized users on their credit card accounts. The child swipes the card, the parent pays the bills and timely payments show up on the credit records of both parties. It can give the child a pretty quick boost because their credit record "will show up with an already-established history, a balance and a payment record," McClary says.

Here's how it could backfire, though: If you have trouble with payments, it hurts not only your own credit score, but also your child's. The difference is, your child is in the earliest stages of establishing credit so any slip-up is intensified, McClary warns. A single missed payment -- an omission not severely damaging to a parent with a long, positive credit history -- could ravage your child's score.

"There has to be a certain measure of trust between the account owner and authorized user to maintain the best possible circumstances for both people," he says.

Kids also have to be committed to repaying their charges. If you let them off the hook, they could get accustomed to handouts, Klontz warns. They won't learn about delaying gratification and the realities of running a household.

"Aging parents financially enable adult children by reinforcing the idea of relying on nonwork income, of doing nothing. It leads to a lack of creativity, passion and drive," Klontz warns.

How to help without hurting: Get your kids acquainted with a savings account, checking account and a debit card before they sign up for a credit card. Have them pay their own rent or utility bills, too.

These activities don't usually contribute to the child's credit score, but they provide the kind of financial discipline young adults need before accessing credit. "It's a good starter to get a monthly payment that you have to keep track of," McClary says. "They don't mean much to a credit score, but it's training and preparation for understanding when credit card or line of credit payments are due in the future."

When your child gets to college, for example, a credit card may come in handy to buy textbooks. But start with a card that has a low credit limit -- about $500 to $1,000 -- so the student gets used to using the card responsibly and paying the monthly bill.

This may come in the form of a secured credit card, in which the cardholder pays a certain amount of money upfront in case he defaults. That cash is stowed away and usually serves as the card's credit limit.

There are other credit cards and lines of credit designed especially for college-aged students, McClary says. These tools help them establish a credit history that they can build on with a limit that, if maxed out, won't be overwhelming to pay off. "The intent isn't to open and keep this card forever. It's to establish enough credit history to graduate to a lower interest rate, better terms and a higher limit later on," McClary says.

Sabotage 3:You're not letting your child manage professional relationships

Paying for your adult child's rent is one thing, but if you're also the one dropping off the check or making the bank transfer to the landlord every month, you're setting your child back. Acting as the point person for your child's bank bills takes away your child's chance to learn how to talk to their peers in a professional setting.

You want what's best for your child and you're worried they may not articulate their needs properly, but you have to let them navigate these relationships on their own.

Your child needs to learn firsthand how to act professionally and build rapport with people who could end up being references for jobs, housing options or other financial endeavors in the future, Pearl says.

How to help without hurting: Start your kids young in wading through negotiations with the people they need to interact with.

Pearl uses the example of buying your child a car. In too many instances, parents turn up in the driveway with the extravagant gift and the car keys. Instead, you should use car shopping as a prime opportunity to show your kids what goes into the decision-making and bargaining.

Have them sit in on negotiations, make them consider the differences between an old car and a new one, and brainstorm together what you need to ask for -- or push for -- before you sit down with the dealer.

Volunteer to be a second set of eyes to read over emails sent to landlords, professors or prospective employers until your child is confident enough to navigate these conversations on their own. You're there to bridge the gap and practice with them while they get valuable experience.

Sabotage 4: You're not letting your children fix their own mistakes

Maybe your child maxed out her credit card, can't make next month's rent or doesn't know if she'll have enough cash to put gas in her car.

Your parental instincts may urge you to help her out, but you're only enabling her behavior, Pearl says. While Pearl's son was forging his path in the music industry, he called her asking for help to cover his rent. Pearl rushed to the bank to make the transfer in time. She bailed him out again a couple of months later. When he tried for a third time, Pearl realized she allowed a bad pattern to take form.

"I told him, 'I'm sorry, I'm going to do you a favor and say 'no' because every time I run to save you, I'm telling you I don't have faith in you to solve your own problems and I don't have faith in your resiliency. I know you'll find a way to make it happen,'" she says.

She has no idea how he paid the rent that month, but he did.

How to help without hurting: Draw a line and stay strong. Your child will try to call your bluff, but you can't waver. If you help your kids out of a bind, set parameters: define whether this a loan or a gift, whether you'll charge interest and whether you will allow this to happen again. Then stick to the terms.

Each time you bail your kids out, you're not giving them an incentive to grow. Like a toddler's temper tantrum, your adult child may even push boundaries to see if you'll cave in.

"They'll do all the things they did before and maybe even worse. But then they will start to take action," Klontz advises.

See related:8 keys to safe credit, debit card use on campusProtect your child's data, privacy at school: 5 tips4 reasons why college kids need a credit card

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

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

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