Financial support for adult kids: Is it doing more harm than good?

Allworth Co-CEO Pat McClain shares his thoughts about one of the biggest questions parents of adult children grapple with.

 

Do you have kids between the ages of 18 and 34? (As I do.)

Here’s a question that I suspect I already know the answer to: Do you give them financial support?

(A whopping 75% of parents do.¹)

But should you?

By most accounts, giving money is done out of love and necessity. But as you may be aware, continuing the cycle of financial dependency can come with some obvious (and not-so-obvious) downsides.

What to do? What to do?

First, if you’re among the 75% cited above, how much are you (and folks like you) combining to spend per annum?

By one estimate, the number is about $500 billion each year, which, unfortunately, is roughly double the amount those same parents are contributing to their own retirements².

And therein lies at least one major problem.

So, should the “everyone is doing it” mantra excuse us parents from being tougher – not with our children – but with ourselves? And shouldn’t we be prioritizing our own futures more? And, simply, short of emergencies, and beyond a certain point, should we be doing it at all?

Studies show that the three reasons we are most likely to give financial assistance to our adult children are:

• Rent assistance
• Credit cards payments
• Student loan payments

Call me Captain Obvious, but these are important expenses that responsible adults certainly want to pay on time.

I know that virtually all of us can agree that we all want what is best for our children. And, with that in mind, the question I most often receive (sometimes directly, other times inferred), is: “By paying for my adult child, am I doing them more harm than good?”

To THAT specific question, I’m happy to provide THE answer: It all depends.

However, rather than me conducting a flyover of the standards of “financial readiness to launch” for any child – something that is complex, personal, and something I couldn’t possibly know from afar – taking a different tack, the first and biggest question I might ask you would be: Is your retirement preparation on track?

Is it REALLY and truly on track?

How do you know?

What I mean is, that, be you retired or be you still in the planning and asset accumulation stage of life, if you are providing significant assistance to your adult children, have you had the financial “birds and bees” conversation with your advisor? And has he or she explained whether you can truly afford to continue? (And still meet your own retirement needs.)

Because if the answer to that question is “no,” then when you consider what it means to launch a child, and what it takes to be retirement ready (or for your money to last throughout retirement), it’s entirely possible that you aren’t truly helping anyone, at all.

As in, not your kids, and as in … not yourself, either.

And that would be the worst of all worlds in this incredibly complex scenario.

I love my children more than life itself. And I say that because my experience has been that a slight majority of parents of adult children, whether they can afford it, or not, give their children more money than is probably ideal (for either party). (And by “not ideal,” I mean that it’s potentially sapping your plans at the same time it’s sapping the initiative and delaying the full launch of your child into adulthood.)

To be clear … not always. But often.

No one wins in that scenario, and yet after 30 years of sitting at the advisor’s table, it’s probably the most common of these circumstances that I encounter.

What should you do?

No matter where you are in the cycle of retirement or retirement preparation, whether you work with Allworth Financial, or another fiduciary advisor, if you are providing your adult child with financial assistance, write down everything you pay on their behalf, and then schedule an appointment with your advisor to truly come to terms with whether you can continue your present course.

That is not an easy thing to assess on your own, to be sure.

But in consideration of all the things you’ve likely done right to prepare for retirement: The saving, investing, planning, and sacrifices. The meeting with an advisor.

Even subscribing to our weekly email update.

Amid that, what too often gets lost (out of love and even perceived necessity) is the actual necessity.  

Take heart … because that’s just what we parents do. (Though, it very well might not be what we should be doing.)

So, if you are in that 75^th parental percentile and you haven’t yet discussed it? Meet with your advisor and crunch those numbers. Learn where you stand and what your options are.

And then?

I would bet that with it will come clarity.   

 

 

 

1 https://womenwhomoney.com/financially-support-adult-children/

2 https://www.pewresearch.org/social-trends/2019/10/23/majority-of-americans-say-parents-are-doing-too-much-for-their-young-adult-children/