According to a 2018 study by Age Wave and Merrill Lynch, 79% of parents with adult children provide some financial support for their living expenses both large and small, from weddings to phone bills. The amount of support provided by parents is even more shocking. The estimate from the same study is $500 billion annually!
This reflects money that parents aren’t saving, contributing to retirement accounts, or investing. Can your retirement afford that kind of generosity? If you fall short of your retirement goals, is the adult you’re bailing out going to bail you out during your golden years?
Before you write your struggling adult child another big check…
Ask These Four Key Questions
1. What, specifically, is this money for?
The keyword here is SPECIFICALLY.
Many parents tend to err on the side of protecting their child’s feelings when weighing financial support. We know asking for money can be embarrassing, and we don’t want to deepen that embarrassment. We’re worried that if we ask too many questions the child will become frustrated and hide serious problems from us going forward.
These are understandable concerns, but it’s important that you understand why your son or daughter needs support. Is it something beyond his or her control (a car accident, serious health issues, unexpected job loss), or are they struggling with basic adult responsibilities? If your child is making poor budgeting decisions or settling for underemployment, you may be throwing good money after bad.
Be tactful, but get to the root problem before you decide if money is the best solution.
2. What is the real cost to me?
Many parents are already helping their adult children more than they realize.
You might not think much of letting your adult children stay on the family cell phone plan or piggyback on a Netflix subscription. After all, it’s only twenty bucks a month, right? The more important thing to examine is how long you have been giving your child a free pass.
Are you helping with larger monthly expenses such as student loan or car payments? When will it finally be time to pull the plug? Your child will benefit more if you set time limits.
Make sure you get it all down on paper. Make a spreadsheet that accounts for the financial support you’re already giving your child — large AND small. Seeing how even small expenses accumulate over time will be eye-opening for both of you and help inform a good decision.
3. What are the terms of the bailout?
This is another area that parents tend to tiptoe around because they’re afraid of insulting their children. But do you know of any bank that’s going to loan your kids money indefinitely, charge no interest, and ask for no repayment? Then why should your money be subject to such lousy terms?
Your children have to understand that your generosity is not open-ended. You’ve probably made many sacrifices for them already. You should not give up your financial security or the nest egg that is meant to support you in retirement.
If your children want you to “be the bank,” then you have every right to act like one. Set clear terms in writing with a repayment schedule.
4. What non-monetary ways can I help?
Does your child need money suddenly because he or she doesn’t know how to budget? It’s very likely that your child spent 16 or more years in school without learning a single thing about managing money. Financial literacy just isn’t taught in schools. This knowledge gap could be a big reason your adult child is struggling. Connect them to the many resources at little to no cost to help educate them about managing their income and expenses.
If your child is a recent college graduate, living in the “real world” can be a shock. Expenses like housing and transportation can be higher than expected. Use your years of experience to help your child negotiate a car loan. Show them that renting or buying a home includes more expenses than monthly rent or mortgage payments. They must account for utilities, repairs, furniture, and more.
The Financial Bottom Line
Cutting the money cord can be hard. No one wants to watch their child struggle. If you’re risking your own financial security, it’s crucial to limit or stop the handouts. Children — no matter what age — must be allowed the opportunity to succeed despite hardships. The less you’re worried about supporting your children, the more secure your own retirement goals will be.