Financially Helping Your Adult Children Can Be a Bad Idea - BUSINESSWoman magazine (2024)

By BARRY SPARKS

It’s only natural to want to help yourchildren financially, even when they become adults. Parents don’t want to seetheir adult children struggle with day-to-day expenses or long-term debt.

Nearly 3 in 4 parents with adultchildren say they help their grown kids with their finances, according to a studyfrom CreditCards.com.

This arrangement, however, presents apotential danger to both the parents and the adult children.

“Boomers are generous to a fault withtheir children and grandchildren,” says Maddy Dychtwald, a Wall Street Journalblogger, author, and co-founder of Age Wave.

“Parents provide $500 billion in supportof their adult children. That is a staggering number,” says Dychtwald.

She points out that the average boomercontributes as much to the financial support of their adult children as they doto their retirement savings.

Contrary to popular belief, it’s notjust wealthy parents in the top 1% or the top 10% of wage earners who arefinancially assisting their adult children.

“Many middle-class parents are makingsacrifices to help their adult children,” says Dychtwald. “While parents arebeing generous in their support of their adult children, they are short-changingtheir retirement savings.”

The statistics support Dychtwald.

A recent survey conducted for NorthwestMutual found 1 in 3 baby boomers have less than $25,000 in retirement savings. Asurvey conducted by GoBankingRates found only 23% of Americans over age 55 hadsaved $300,000 or more for retirement.

Helping adult children pay expenses isone of the reasons baby boomers give for not saving enough for retirement.

According to Dychtwald, 82% of parentswould make major financial sacrifices, such as delaying retirement, takingmoney out of their retirement fund, or avoiding major purchases, to financiallyhelp their adult children. Some financial advisers say they have seen parentsdeplete their retirement savings to help an adult child.

Interestingly, a majority of Americansbelieve parents are doing too much for their young-adult children today.

Financial independence has traditionallybeen one of the signs of adulthood. This typically came after the child graduatedfrom college, around age 22. Now, however, financial independence has beendelayed until much later. Thirty-one percent of adult children, ages 18-34,live with their parents, according to Dychtwald.

The financial support most parents areproviding for their adult children isn’t for emergencies. It tends to be forday-to-day expenses, such as rent, cellphone bill, cable television, andutilities.

“Only 25% of the financial support isgoing toward paying college loans,” says Dychtwald. “Other debts parents tendto help with are those associated with credit cards, medical expenses, and carloans.”

Dychtwald believes Americans havecreated a generation of arrested development in regards to financialindependence.

“Parents mean well, but they aren’tdoing the right thing,” she stresses.

In addition to creating a financiallydependent generation, parents run the risk of shortchanging themselves inretirement. Since Americans are expected to live to age 85, they will need moremoney in retirement than previous generations. That sets up the possibility ofthem having to financially depend on their adult children in their later years.

Dychtwald says one of the best giftsparents can give their children is to teach them to be financially independentand to live within their means. Sometimes, adult children don’t learn thoselessons until they experience failure and the consequences of their poordecisions and habits.

Kathy McCoy, Ph.D., a marriage andfamily therapist, says repeatedly financially rescuing an adult child can setup a pattern of dependency and expectations.

Saying “no” to adult children isn’teasy, but parents must learn to do so.

“Learning to say ‘no’ is important,”comments Dychtwald. “And, not just about financial support.

“Finances can be an emotional issue forboth sides. The goal is to have open communication to discuss the issue andmake decisions together. That’s really the most important advice I can give parentsand their adult children.”

Some financial experts suggest parentsturn to the calculator before they open their checkbooks. They recommendparents review the adult child’s budget to find out how they are spending theirmoney and the source of the financial problems. Maintaining a budget should bea prerequisite for receiving help.

Dychtwald recommends adult children takeonline classes, attend community classes, and read books on managing theirfinances. She says it’s a good idea if parents can attend along with theiradult children.

“It sets up opportunities for talkingand learning,” she says. “Ultimately, you want the need for financialassistance to be a win/win for both sides.”

Another suggestion is to involve yourfinancial adviser. He or she can explain to adult children the financial impactof the parents’ decision to provide financial assistance. A third-party viewcan carry a lot of weight.

Finally, before writing a check, advisersstrongly urge parents to develop a plan, agreed to by both sides. The planshould include a maximum dollar amount of support and a definite end date.

“Being financially dependent is not goodfor adult children or their parents,” says Dychtwald. “Both sides need to worktogether to turn the situation into a positive. Parents need to be able toassure they will have enough money in retirement, while adult children need tobe financially independent.”