There’s probably no better evidence that times are tough. In a recent study, an astonishing 59% of parents reported providing financial support to adult children (ages 18 to 39) who are not in college. Almost half support children with living expenses, 41% with transportation costs and 29% with spending money. And over one-half of all 18- to 24-year-olds in the U.S. still reside with their parents.
Parents are often happy to help out. In surveys, they say they “don’t want their children to struggle like they did” or they are “concerned with their financial well-being.”
But according to the National Endowment for Financial Education (NEFE), giving money to your adult children can put your own retirement in jeopardy, especially if you have not yet saved enough for yourself. More than 25% of parents surveyed actually took on additional debt to help their children, and almost one-tenth had to delay their own retirement. “Ironically, if you are not careful, you could end up depending on your own children for help in your old age,” say experts at New York Life.
If you do want to extend a hand to kids or grandkids, try to do so in a way that does not put you at risk or increase your child’s dependency. Here are some DOs and DON’Ts from the experts:
- DO ask yourself first if it’s a short-term emergency requiring critical intervention, or rather a chronic situation that requires behavioral or lifestyle changes on your children’s part to fix. Bailing out someone who continually overspends or pursues an unsustainable lifestyle is a waste of your money and postpones the inevitable. “The more support provided, the longer the dependency period tends to be,” says Denver financial planner DeDe Jones.
- DON’T provide any monetary help unless you can do so without putting yourself at risk. Diverting urgently needed funds from your own retirement can put you in a precarious situation from which you can never recover. Ask yourself whether helping out increases the risk that your money won’t last long enough. If the answer is yes, provide moral but not monetary support.
- DO let kids move in for a while rather than offering to pay part of their rent. Do set clear expectations about how long the welcome mat stays out, whether they should pay rent, and what conditions are attached to your help. Almost half of parents surveyed said their kids did help out with household bills, or with chores like cooking or cleaning.
- DON’T step in to pay off kids’ debts or student loans. Do help them restructure debt and provide help with budgeting, since they may be juggling too many bills on too little income. Do suggest they use an online budgeting site like mint.com to track and monitor their spending. Do stress the importance of an emergency fund to pay unexpected bills, like a car repair, and encourage them to kick the destructive credit card habit.
Parting Thoughts: To help our children live independent, fulfilling and responsible lives, we need to ask ourselves when it’s best to help, and when it’s best to say no.