Credit concerns

"Giving teenagers access to your credit card sounds counterintuitive, but avoiding the topic is a horribly misguided approach to teaching kids how to use credit and achieve a good credit score," says John Ulzheimer, the president of consumer education at SmartCredit.com. "You have to assume they will use a credit card, so teach them how to use it sooner rather than later. Adding your older teen to your credit card account is the equivalent of driver's ed and a learner's permit when it comes to credit usage."

Ulzheimer and Kay agree you should never co-sign for loans or credit cards for your kids, no matter how old they are. "If you co-sign, they control the card or loan, but you have equal debt liability if an account defaults. It puts your own debt-to-income ratio and credit score at risk," says Ulzheimer.

Kay says, "The baby boomer trend is to bail out their adult kids repeatedly, which deteriorates parents' own wealth and retirement."

When to start cutting the cord

A "boomerang kid" is an adult child who returns to live at home again later in life. "When a boomerang fails to launch or refuses to leave home, you've got to cut that cord," says Kay. "Make it as uncomfortable as possible for that adult child to live at home. Instead of feathering the nest, add a few pine cones to make leaving the nest seem more attractive -- and then they will fly."

  • Start cutting the financial cord early. If your young child wants designer duds or a fancy gaming system, have him or her earn it by doing chores around the house and saving money from birthdays and events.
  • By age 16, expect your kid to work for you with chores or at a part-time job. He or she can use this money to pay for a cellphone bill, a portion of car insurance and gas on your car and as savings for his or her own car.
  • If kids are living at home at age 18 and older and are not in school, they should be paying rent -- barring a tragedy or extenuating circumstances. Try to make the situation temporary by increasing the rent every three months or so. A written, well-planned exit strategy is a good idea when a grown child asks to live at home.

When to stay connected a little while longer

  • If college students want their own credit card, keep them as an authorized user on your card while teaching sound credit principles until they turn 21. New credit card rules make it difficult for those younger than 21 to get their own credit cards without their own income or assets.
  • If your adult child needs help with health insurance, keep him or her on your plan as long as it's financially feasible for you. President Barack Obama's Patient Protection and Affordable Care Act allows children to remain covered under a parent's health insurance until age 26.

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