By Brett Gottlieb and John Mc Kean
How much money do you give to your adult children? We’re not talking about slipping them $20 every now and then or paying for dinner when you get together, but actually financially supporting them. If you do help them out significantly, you’re in the majority. In a Merrill Lynch Age Wave survey of more than 2,500 parents, 79% of parents reported helping their adult children financially, to the tune of $7,000 on average. (1)
It’s natural to want to help your children, especially since the younger generations are facing some significant financial challenges in the form of heavy student loan debt, high housing costs, and slowly growing wages; but putting their needs ahead of your own could be dangerous. In fact, almost 75% of parents admit to putting their children’s interests ahead of their retirement needs. (2)
If supporting your adult children financially is disrupting your retirement plans, here are 4 ways to prioritize your financial future while equipping your children as well.
1. Have A Heart-To-Heart
Kids of all ages are used to their parents taking care of their needs, so they may not realize their reliance on you is setting you back. Make sure you and your adult child are on the same page so that there aren’t unrealistic expectations. It might help your child if you are honest about your financial situation. Let them see the big picture so they understand the financial implications of their choices.
This will likely be a difficult conversation, but they’re adults…they can handle it! Be as specific as possible, explaining how your financial support has postponed your retirement date or forced you to dip into your 401(k). If your children are upset, remind them that by pursuing your own financial security, they won’t have the financial burden of supporting you later in life.
But don’t just tell them you’re cutting off financial support; give them the tools they need to succeed on their own.
2. Offer Non-Financial Support
Just because you’re halting the flow of money doesn’t mean you are cutting off all forms of support. You have decades of wisdom and experience that you can pour into them that will help them as they gain independence. Ask how you can be there for them moving forward. Could you help them look for a job? Offer to search for housing within their new budget? Maybe walk them through how to negotiate a raise at their current job? There are many ways to help your child without handing over the checkbook. Make sure they know you’re still there for them.
3. Equip Them With Practical Skills
Living within your means is easier said than done, but by teaching your kids how to budget, you give them a framework to make financial decisions and take ownership of their future. As young adults start their first full-time jobs and adjust to possibly living on their own or taking on more expenses, they need to learn how to look at the numbers and align their lifestyle with their income. This means ignoring society’s incessant messages that they need what everyone else has.
Setting a budget will help them stay on top of their debt, know where their money is going each month, and see how much they are saving. The first rule of financial security is spending less than you earn and saving the difference. If your adult child can master this, they’ll soon be on their way toward financial independence. While the parameters of a budget depend on an individual’s specific situation and goals, you can get your child started by giving them tangible examples of what it costs to manage a household and help them map out how they will divide their money among essential expenses, savings, debt payments, and non-essentials.
And since your adult children likely rely on technology for everything, encourage them to use a budgeting app to track their money and stay on top of their accounts.
4. Set Boundaries
Don’t want to cut your kids off cold turkey? Give them conditions on how long and under what circumstances you’ll continue to support them. They’ll learn nothing if you hand over money without a thought. But if you introduce conditions and set a clear path for getting them where they need to be, they’ll learn to be responsible.
These conditions might include treating the money you give them as a loan. If they need money for rent, create a contract for when they’ll pay you back and what they’ll owe you in interest, if anything. If your child is jobless and needs to move back home, set a time limit to how long they can stay and how they’ll contribute to the household. The bottom line is to make them earn the money you give them so they understand the value of it.
Get Your Retirement On Track
Once you’ve had the heart-to-heart and have cut the money cord with your children, take a deep breath. You may doubt your decision as you see your child struggle to make ends meet, but take comfort in knowing this is only temporary. You’ll be there to emotionally support them every step of the way, just not financially.
One of the best gifts you can give your child is teaching them how to manage money. When your children can set a steady course toward their own financial success, it helps them live within their means and helps you keep your retirement savings.
At Comprehensive Advisor, we believe that it’s never too late to get your finances in order, so whether you want to check on your progress toward retirement or your child needs some help setting a strong foundation, we are here to help. Email us at info@ComprehensiveAdvisor.com or call (760) 813-2125 to get started.
About Brett and John
Brett Gottlieb is the founder of Comprehensive Advisor and a financial advisor with nearly two decades of industry experience. He graduated from California State University-Chico with two bachelor’s degrees in Business Administration and Economics. Brett is Life Insurance licensed in several states.
John Mc Kean, financial advisor, joined Comprehensive Advisor in 2016. He has been in the financial services and retirement planning industry for over six years. John is Life Insurance licensed in California.
Brett and John previously worked as Registered Representatives with Securities America, one of the largest independent broker/dealers in the country, and currently offer advisory services through AE Wealth Management, LLC. Both are passionate about educating clients on retirement planning. They take a common-sense approach to the planning process and work with clients to create a retirement road map to help ensure their assets are protected and they receive the income needed to enjoy their future. Based in Carlsbad, California, they work with clients throughout San Diego County. Learn more by connecting with Brett on LinkedIn or email them at info@ComprehensiveAdvisor.com.
Investment advisory services offered only by duly registered individuals through AE Wealth Management, LLC (AEWM). AEWM and Comprehensive Advisor are not affiliated companies. C.A. Financial & Insurance Services California Insurance License #6000262. This material is intended to provide general information and is believed to be reliable, but accuracy and completeness cannot be guaranteed. 491593