Preparing adult children for financial independence is now a critical element of parenting. Being a top Money Mentor will save big dollars and enhance your relationship.

The number of adult children living at home with their parents for “financial” reasons has never been higher. Unfortunately, these adult children become a serious financial drain on their parent’s retirement plans.

While it may sound ruthless, the solution is to cut adult kids free and plug that massive financial leak.

But you can ensure your kids thrive in their financial independence by passing on these 6 key financial lessons.

. Sweat the detail

Managing the small everyday financial decisions is where the big savings are made. So teach adult children to ask themselves two simple magic questions before paying for anything; do I really need this? And. Is this the best deal I can get for this product or service?

If they get in to this mindset on everything from a cup of takeaway coffee to big ticket items like fridges and cars they will be amazed at how much money they’ll save over the long term.

We even know of some people who, if they know they’ve made a saving on something, will put the difference in a jar which feeds a separate online savings account.

. Get rich slow

Today’s Gen-X and Gen-Y seem to be more in a hurry to be rich than previous generations. Maybe it's the power of social media and reality TV programs but the dream of fast fame and money is intoxicating.

Unfortunately most will be disappointed to find out the hard way that very few get rich overnight.

Teach your adult kids the power of getting rich slowly. A lesson in the magic of compounding (where money in a savings account earns interest on past interest) certainly grabbed the attention of our four adult children. None of them had any idea how compounding interest rates could supercharge savings returns.

It’s important everyone understands that good returns are made from income producing investments as well as capital growth alternatives.

. Have discipline

Another powerful lesson for our adult children was the introduction of “payday savings”. It started back when we were handing out pocket money when, every Friday, a percentage of the pocket money was immediately put into a piggy bank or a savings account.

They immediately adopted the habit with money from their part time/holiday jobs and eventually when they started careers. The transition was easy because they started the financial habit so young.

The lesson taught them how saving a small amount on a regular basis can add up quickly.

. Be an entrepreneur

Our society and education system is great at preparing us to be an employee. But look at the financial success stories in Australia and most are based on an idea leading to a successful business.

We should all be developing and encouraging the spirit of entrepreneurship in our children. Encourage them to start little businesses on the side and learn the successful tips from well known entrepreneurs. (give them the Steve Jobs biography as a gift).

We also need to support them during the hard times, and the failures, which will inevitably happen as part of the learning cycle.

BUT do not be suckered in to financing or guaranteeing an adult child’s business venture. The risk is too high. Parents should be supportive but not financial.

. Bad debt is the devil

Good debt is borrowing to build appreciating assets and investments. Bad debt is using credit to buy a consumable or depreciating item. It’s important the difference between good and bad is clear.

Just as the impact of compounding interest on savings is fabulous, compounding can be just as disasterous on borrowing… particularly credit card debt.

We find the friends of our adult children are being lured in to big credit card bills supporting an unrealistic lifestyle and then being hammered by the high interest rates on unpaid balances.

Encourage the use of debit cards for purchasing consumables and online shopping.

. Be a savvy shopper

Give children the tools to shop wisely and the confidence to negotiate on everything.

Simple tips like big brand names usually cost more and sticking to a list at the supermarket can make an enormous difference to anyone’s lifetime shopping habits.

In the current economic environment, most retailers know they have to be competitive and expect to be asked to sharpen their offer. It takes nothing to ask “is that your best price?” when making a purchase but it could save a fortune.

. How to do a personal budget

It should be the foundation of every Australian’s financial future… a personal budget.

Start by showing the kids when they’re young how you do your budget. As they get older do them at the same time. Make it a family ritual.

Knowing where your money comes from and where it goes is the secret of keeping financial control.

RULES OF ADULT CHILDREN LIVING AT HOME

. make them sign a lease like any other renter

. charge a rent which covers their share of household expenses

. list rules of your house… behaviour, responsibilities etc

. time the rent to their pay day so you get paid first

. remember it’s your house and your retirement future