How can I stop my adult kid from drowning in debt?

Money management isn’t a spectator sport. It can take time, practice, and natural consequence for an adult child to learn the savvy money skills they need.

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Q: My 25-year-old daughter spends money like it’s water. She lived with a friend at their parent’s place for four years, didn’t have to pay rent, and assumed that would also be the case when she moved home again. We don’t ask our adult kids to pay rent at home, but we do expect them to work, save, and chip in around the house. Her siblings get it, but for the 10 months she’s been home again, she has spent every cent she’s earned. Her credit cards are maxed and I took my name off of them for fear of it ruining my credit. I hope she’s been making her payments, but I can’t be sure, especially because she was declined last week for another credit card. When I ask her about her debts and money, she gets defensive.  

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Now she’s getting a condo with a friend and her share of the rent will be about $1,500 plus her car payment, insurance, food, bills, etc. I honestly don’t see how this will work for her. Her track record for keeping jobs isn’t great and I fear she’ll be asking us if she can move home again in a few months. She hasn’t asked to borrow money from us, but that will come, I’m sure. We co-signed her car loan and usually have to make those payments every few months too. What can we do? — Kathleen 

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A: As parents, we want the best for our children, but once they reach the age of majority it becomes especially hard to protect our adult kids from themselves. They have the legal authority to manage their lives and affairs as they choose, even when their choices don’t align with our best advice, guidance or concerns.

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When it comes to financial decisions, it is difficult to learn vicariously through the wisdom of others. Money management is a participation sport. We need to roll up our sleeves, give it a try, celebrate successes and work through the bumps and bruises along the way. While others can share with us what they learned from their experiences, until we’re faced with a similar situation, we often aren’t ready, willing or able to be receptive of the information.

Why Messing Up Financially Might be Good for Your Adult Child  

Can you stop someone from getting credit?

When facing a money crunch, the first thing many people try to do is get more credit, but you can’t borrow your way out of debt. There is no easy, legal way to stop another adult, e.g. spouse, adult children, family members, friends, etc. from applying for more credit. However, the worse their credit, the less likely it is that they’ll qualify for a new loan or another credit card at an interest rate they can afford.

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Life lessons are hard to learn, but thankfully, when it comes to credit, there’s a chance to redeem ourselves if we’ve made some bad choices with our money. Most information, whether it’s good or bad, drops off of our credit reports six to seven years from the date of last activity. Should we need it, this provides a chance to start over. It also means that someone can learn a valuable financial lesson over a relatively short period of time, rather than agonizing for decades.

How to Get Out of Debt With Bad Credit 

Resist the urge to co-sign for your adult children

When your adult child struggles with their routine finances and their lifestyle spending seems to exceed their income, resist the urge to co-sign credit for them. Co-signing a loan, credit card, or cell phone contract can significantly impact your own finances and jeopardize your future financial stability, without doing your kids any favours. Rather than gaining money skills and becoming financially independent, providing too much support can stunt their financial growth or interfere with what others learn much sooner.

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4 Reasons Why Not to Bail Adult Kids Out Financially 

If you’ve already co-signed, it’s best that you ensure that the payments on debts with your name on them too are made on time and in full every month. This will protect your credit rating, but you may want to find creative ways to recoup what you’re owed. For instance, if you co-signed a car loan, require that your child surrender the keys to you during their non-working hours every time they miss a payment and until they catch up what they owe you. This forces them to park the car during their free time but doesn’t interfere with their ability to earn an income and miss more payments.

How to Pay Off and Make Joint Debts Work 

Allow your child to feel natural consequences

Kids sometimes learn better from others than from their own family. If you have a capable, adult child making poor financial decisions, preserve your relationship by allowing natural consequences to occur. If your child can’t make their car payments, and the loan is only in their name, collection activity will escalate and become very uncomfortable. Walking, taking public transportation, catching a ride, or selling the car to pay off the loan and saving up to buy a cheaper vehicle are all viable solutions. Your child may not like these options, but they are nevertheless options utilized by millions of people every day. Your child will have the opportunity to rebuild their credit rating while they temporarily find alternate ways to get around.

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When an adult child lives away from home, allow the living arrangements to be between your child and their roommate or landlord. While shortchanging a roommate can destroy a friendship and not paying a landlord could end a good tenancy opportunity, failure might be your child’s fastest teacher. When your child is choosing to live their life their way, they need to take the bad with the good, which may include making tough choices around their living situation. If your child asks to move back in with you and you decline their request, explain to them why that is so that they have the opportunity to learn.

Should Working Adult Children Who Live at Home Pay Rent? 

Before allowing your child to move home again

If your child ruins their living situation, before you allow them to move home again, outline a written agreement with the goal to encourage them to fall into line with your expectations while living under your roof. Put your rules or conditions, as well as the consequences for not living up to them, into writing and have your child sign the agreement with you. Make it clear that you will follow through (make sure you do!) and if your child doesn’t like the rules, they are welcome to seek a living arrangement elsewhere. Seeing the rules in black and white posted on the fridge has a way of making them seem more real, that mom or dad isn’t joking and allowing a free pass.

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The Simplest Way to Keep Track of Your Money 

The bottom line on helping adult children make wise financial decisions

It’s important that everyone learns certain financial realities of life – spending within our means, living up to our commitments, and paying our bills on time. Tough love can be hard on a parent’s heartstrings, but helping an adult child learn these realities is reasonable, responsible, and the loving thing to do when done appropriately. If you’re having trouble standing by and watching as natural consequences unfold for your child, remember that in the long run, you are helping them gain the money skills and financial independence they will need for the rest of their life.

Related reading: 

How to Overcome 8 Sources of Financial Problems 

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Budget Guidelines by Income – How Much Should You Spend?

All Inclusive Guide to Living on a Budget 

Peta Wales is President and CEO of the Credit Counselling Society, a non-profit organization. For more information about managing your money or debt, contact Peta by email, check or call 1-888-527-8999.  

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