The beginning of the year is typically a time for reflection and goal setting, and I started thinking more about what the concept of financial independence means to us. This is one of my favorite topics because of what it means for financial well-being (the ability to meet all financial needs, today and over time; feel secure in the financial future; absorb a financial shock; and have the financial freedom to make choices to enjoy life).
During college and graduate school, I started along the path of financial independence, but it seemed like a very long journey back in the late 2000s. I relied on my family for support (e.g., housing, car), and without that assistance, I would have struggled to get to my jobs and have a safe place to live. There are debates about the markers of financial independence. A recent report from the Pew Research Center stated that most Americans (64%) believe that financial independence is a milestone young adults should reach by age 22. While this is a common thought, the reality is much different. In 2018, only 24% of young adults were financially independent by age 22 or younger (32% in 1980). Factors such as staying longer in school, delaying partnerships/marriage, and economic conditions affect when young adults fully achieve autonomy.
In this article, I focus on financial independence as a contemporary indicator of transiting to adulthood. In a 2019 article, Bea and Yi described four paths for young adult:
- Consistently independent – fairly independent, may receive some assistance from family but remain financially responsible
- Quickly independent – started out dependent on family mainly for housing and other smaller support, that changes early in adulthood
- Gradually independent – moves steadily toward independence, support from family decline as they age (by mid-twenties)
- Consistently supported – receive support from family longer than the first three groups
I wanted to highlight these categories because of these debates about financial independence, and the studies from the Pew Research Center (mentioned above), which found that most Americans believe parents are doing too much for the young adult children.
- For families with young adults, the boundaries you set-up will depend on family dynamics and the type of support you can offer. Since, you understand first-hand the barriers your young adults face, create goals or plans that support not only theirs, but also your financial well-being and long-term goals.
- For young adults, the goal to be completely independent is a great motivator, but it is also important to:
- Understand that your path to financial independence may not resemble peers or previous generations because socio-economic backgrounds and current economic conditions may affect levels of support from family;
- Celebrate small achievements such as paying off a credit card, and using cash to pay for a road trip or cover school supplies; and
- Recognize financial independence as a long-term commitment, and while setbacks can slow down progress, they should not erase this goal
Expectations, values, beliefs, and economic conditions may influence perceptions as well as our financial independence trajectories. The belief that parents are doing too much financially for their young adult children has dominated current thoughts about financial independence. However, Bea and Yi found a more complete picture that shows the different levels of independence. It is also problematic when we are examining this topic to assert that it is a linear path, young adults are mostly financially dependent, and parents are impeding their launch.
Bea, M.D., & Yi, Y. (2019). Leaving the financial nest: connecting young adults’ financial independence to financial security. Journal of Marriage and Family, 81, 397-414.
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