When Does It Make Sense to Help Your Adult Kids With Money?
May 27, 2015 | Your Finances
Like many loving parents who’d do anything for their kids, you may be helping your adult children financially. If so, there are two things I’d like you to know.
First, you’re not alone: More than a third of Baby Boomers are providing financial support to children in their 20s and 30s. Second, and more importantly, that natural tendency to be generous with your kids may be jeopardizing your financial security and putting your own retirement at risk.
That’s the latest finding from Hearts & Wallets, a research firm that tracks retirement trends. They found that Boomers with financially independent children are more than twice as likely to be retired (52 percent) than people in the same age group who are financially supporting their adult children (21 percent). What’s more, the study showed that parents who are lending a hand financially are also 25 percent more likely to have “heightened financial anxiety” than parents who don’t.
I often hear from people with adult kids that they don’t want their children’s lives to be as hard as theirs was. But I also see how those loving instincts can backfire. That’s why, whenever parents share that they’re thinking about helping their grown child financially, I encourage them to ask themselves some basic questions first, including:
1. Can you afford it? Before you offer financial support to your grown child, consider your own situation. Do you have sufficient savings to retire comfortably? Will lending or giving your kids money cut into your ability to enjoy retirement in any way? If so, you may want to look for other ways to show you care and support them. Maybe your child can move in with you temporarily, or you can provide child care for a grandchild to help reduce expenses.
2. Are you setting a precedent? If you give to one child or allow him or her to come back home to live, you may need to be prepared to field similar requests from your other children. I’m not suggesting you should agree to a request from one child simply because you supported another, but it will help if you and your spouse have discussed and agreed upon clear boundaries regarding when you’ll provide financial help—and when you won’t.
3. Are you empowering or enabling? Before you rush to provide financial assistance to your child, consider the circumstances. Is your child going through a particularly challenging period? If so, lending a hand may be justified. But what if your child can’t manage money, overspends on “wants” or has other issues that lead to chronic money problems? Rather than giving cash to your child, consider paying a bill directly, buying him or her a gift card for groceries, or making an appointment with a financial professional or counselor to help your child get on track financially.
4. Have you set clear expectations? The more seriously you take the situation, the more likely your child will, too. If you decide you can afford to help, establish whether you are giving your child a gift or making a loan. If it’s a loan, set a realistic repayment schedule and put it in writing. Also, discuss what will happen if your child doesn’t repay the loan as agreed.
Most important, don’t be afraid to say “no.” Your financial stability is just as important as your child’s. The only difference is that you’ll have less time to make up for any hit to your savings that may come if you put your child’s needs ahead of your own.