Parents significantly supporting their adult children financially (not just covering dinner every now and then) isn’t anything new. However, COVID-19 has certainly increased the stats in this category. A recent survey found that 45% of parents with adult children have given their kids money during the pandemic (over $8,500 on average), and of those, 79% said the funds would have otherwise gone toward their own personal finances. (1)
Yes, it’s natural to want to help your children, especially now more than ever. The younger generations are facing 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. A 2020 Merrill Lynch survey found that 72% 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 also equipping your children.
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
We know it can be hard to see your children struggle to make ends meet, and you may even doubt your decision to cut the money cord. But take comfort in knowing that you’ll still be there to emotionally support your kids every step of the way, just not financially.
And don’t forget that one of the best gifts is teaching your children how to manage money. When they set a steady course toward their own financial success, they are more equipped to live within their means and it helps you keep your retirement savings.
We at Fiduciary Wealth Management believe 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. We take a holistic approach, working closely with you to craft strategies that align with your circumstances, and help you pursue your objectives and stay on track.
To see if we’re the right fit to help you secure your retirement, schedule a phone call now!
About Rocklin Senavinin, CFP®
With over 20 years of experience in the financial planning industry, Roc has dedicated his career to helping individuals live comfortably in retirement and enjoy the assets they have spent their career building. He is co-founder of Fiduciary Wealth Management, a fee-only registered investment advisory firm in Little Rock, Arkansas. As a CERTIFIED FINANCIAL PLANNER™ professional, he has advanced training in the holistic process of creating a personal financial plan that addresses a person’s comprehensive needs for the short and long term. To learn more, connect with Roc on LinkedIn or visit www.fidwm.com. If you have questions, feel free to schedule a phone call using this link.
DISCLOSURES
The views expressed represent the opinions of Fiduciary Wealth Management, LLC and are subject to change. These views are not intended as a forecast, a guarantee of future results, investment recommendation, or an offer to buy or sell any securities. The information provided is of a general nature and should not be construed as investment advice or to provide any investment, tax, financial, or legal advice or service to any person.
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(2) https://www.ml.com/the-financial-journey-of-modern-parenting.html