Financial independence of youth by Abdikafi Mohamud

Introduction

The financial independence is crucial aspect to young adults, society, and for their parents. Young adults consider financial independence as one of the top goals for entering adulthood. Financial independence is something required for young adults and the healthy development of a society (Arnett, 2000). Moreover, no parents would like their children to rely on them for life. So what is the real meaning of financial independence? Financial independence means that you have enough wealth to live in your daily life without working. In addition to that, financially independent people means those have assets that make income which is at least equal to their expenses. Income you earn without working a job is commonly knowns as "passive income” (John, c. 2009).

One early studies defined financial independent of child as if she or he resides in a group living arrangement alone, in a non-organizational environment, joins the military, or leaves the home for marriage. Children living in an organizational housing such as at college boarding or children who have income but still live with their parents are not considered as financially independent (Whittington and Peters, 1996). Living with parents are identified as an indicator of financial dependence.

Causes of financial dependence

Recently the process of transition from financial dependence to financial independence has become lengthened and more complicated for young adults of being into adulthood. With a longer period of transition to adulthood (financial independence), many young adults rely on their parents and immediate families for financial assistance over an extended period of time (Furstenberg, Rumbaut and Settersten, 2005).

Previous researchers estimated that parents provide approximately on average $38,000 as material assistance such as housing, educational, food, or direct cash assistance over an extended period of time (Schoeni and Ross, 2005). Moreover, the study revealed that the families spend 10 percent of their annual income to help to their young adult children of ages 18-21 (Settersten and Ray, 2010).

During this complex and prolonged process, some young adults become more vulnerable as they rely on their parents or other family members (Furstenberg et al., 2005).

One of the major reasons for young adults taking a longer time to become financially dependent is the higher demand for training and education required by society.

On the other hand, in last year the youth mutual commissioned and the social issues research Centre conducted a study that examined the new process of “emerging adulthood” from the dependent to independent. The study briefly suggested in the “Trust Fund Generation report” unrealistic expectations about young people whether it’s when they leaf home, get married or buy their first home. The study also noted the extent to which young remained financially dependent on their parents for far longer than as it was a couple of decades ago. The delays in achieving hallmarks of adulthood have been increasing for the last three decades. The causes of that delays of still being financially dependent were reasoned a number of points as shown below:

1. Extended periods of education
2. Student finance debts
3. College escalating costs
4. High property costs

Likewise, economic factors such as wages for both male and female children or welfare income receipts for female children have been found to be important determinants and causes of financial dependence (Whittington and Peters, 1996).  U.S. census data from 1960-2007 noted that- by comparing changes in economic conditions across states to changes in living standards- several factors led to increases in the number of young adults living with their parents, such as fewer jobs, low wages, and high rental costs (Matsudaira, 2010). Meanwhile some researchers noted that in the U.S., that 50 percent of young adults for 18 and 21 years of ages attend college and only 25 percent of adults for 24-35 years of ages become college graduates. The rest of the young adults either drop out of college or never attend college (Settersten and Ray, 2010).

As Martha C. white posted, In the last two years, the teenagers who expect financially dependent on their parents and their families in the middle of 20s have increased.  In addition, 25% of youth think that they won’t be able to enough themselves until late 20s as showed a survey conducted by junior achievement, a group that teaches youth about money and jobs. Two years ago, a group of teenagers surveyed, 12% of those teens said that they have to reach the 25 to 27-year-old age before been able to pay their own bills and support themselves.  Martha C. White also suggested number of factors behind the delay of youth achievements as listed below:

1. Poor understanding of budgeting and basic finance.
2. College escalating costs
3. Poor jobs prospects
4. Lack of motivation

For another reason, in today’s world many teenagers are relaying on their parents and even moving back home after college graduation, since their parents are paying the bills for smartphones, internet access, shopping expenses, music and TV subscription services.

Suggestions

First, I would suggest to research scholars especially Somali scholars to conduct some wide and deep studies related to the financial independence of youth, in order to find out some awareness to what level the financial dependence or independence of our youth reaches and what factors behind that.

Second, I would suggest to academic universities and schools to develop and conduct a broad practical based programs and trainings related to personal finance plans, budgets and financial management techniques to educate youth how to manage their personal financials.

Finally, I would suggest to young adults especially -those who in the middle of financial dependence including me - to enhance their well-being of living by critically planning the above mentioned factors. Whether its college cost, daily life costs, poor of understanding of finance budgets, and extended period of education. Smoothly, I would recommend two critical dimensions to fully understand and make the habits of saving and investing in real life.

Conclusion

In conclusion, Financial independence means living without working and earning a passive income to fully cover your expenses and daily life issues. Unfortunately, most young adults live as financially dependent on their parents because of an extended period of education, college cost and student debts and number of other factors as presented before. In summary, financial independence is complex topic which I recommend for further researches and training relating personal financial budgeting, investing and saving techniques.

References

1. Cummuta, John. "The Myths & Realities of Achieving Financial Independence Archived 2011-07-14 at the Wayback Machine.". Nightingale Conant. Retrieved on 14-Sep-2009
2. Arnett, J. J. (2000) Emerging adulthood: a theory of development from the late teens through the twenties. American Psychologist, 55, 469-480.
3. Furstenberg, F. F., Rumbaut, R. G. & Settersten, R. A. (2005) On the frontier of adulthood: emerging themes and new directions. In On the Frontier of Adulthood: Theory, Research, and Public Policy (ed. by R. A. Settersten, Jr., F. F. Furstenberg Jr. & R. G. Rumbaut), pp. 3-28.
4. Matsudaira, J. D. (2010) Economic conditions and the cyclical and secular changes in parental coresidence among young adults: 1960 to 2007. Working paper. Cornell University, Ithaca, NY.
5. Schoeni, R. F. & Ross, K. E. (2005) Material assistance from families during the transition to adulthood. In On the Frontier of Adulthood: Theory, Research, and Public Policy (ed. By R. A. Settersten, F. F. Furstenberg Jr. & R. G. Rumbaut) , pp. 396-416. The University of Chicago Press, Chicago, IL.
6. Settersten, Jr., R.A. & Ray, B. (2010) What’s going on with young people today? the long and twisting path to adulthood. The Future of Children, 20, 19-41.
7. Whittington, L. A. & Peters, E. H. (1996) Economic incentives for financial and residential independence. Demography, 33, 82-97.