What to do when an adult child is a financial mess

Allworth Co-CEO Scott Hanson shares a few tips for how to handle an adult child who continually needs your financial support.

 

Curious about how to wean your adult children off the parental dole?

This is a difficult subject.

We don’t want to see our children suffer.

That said, we here at Allworth Financial meet with a lot of loving parents who are having a hard time reining in their financial support for their adult children.

In some instances, the situation is so dire that it’s threatening their own financial health, or even the marriage.

There are of course exceptions, but continuing to support your adult child can:

• Delay your retirement
• Negatively affect your quality of life during retirement
• Impact your marriage
• Deplete your children’s future inheritance
• Cause discord among siblings
• Enable addiction or even allow mental illness to go untreated
• And keep your child from achieving the best possible version of themselves

One way or another, unless you have unlimited means (and even then, you surely want your children to be fiscally responsible), sooner or later, you’ll need to stop financing their lives.

What follows are 5 concerns about adult children and money.

1. Time to talk

Guilt. Blame. Misunderstanding. Except for when you’re speaking with your advisor, money conversations are one giant minefield.

I’m going to guarantee that everyone reading this has had disagreements about money. Perhaps hundreds.  

Most parents unwittingly ease into the quicksand of slowly-but-surely increasing their financial support for a child. Maybe you paid for college, and then your child needed help subsidizing rent. Maybe their car blew up and you’re making the payments on the new one. Maybe they got laid off from their first or second job, and they can’t find another one. Or, maybe their rent is late.

Paying for an adult child is a slippery slope.

This isn’t fun. But while financial hardships (and related stress) are unfortunate (and common), young adults have decades to recover from money and credit setbacks.

You don’t.

Retiring and running out of money 10 years too soon isn’t going to be good for anyone.

Before you set any expectations or draw a line in the sand, the first thing you can do is to use calm moments to clearly and directly ask (try not to make it ominous) your child how much longer they believe they’ll need your support.

Even if your child thinks you have all the money in the world, put the onus on them to draw the line rather than making it about you.    

2. What can you really afford?

You didn’t think I was just going to suggest a “hard stop” did you?

Not yet. And that’s because you need information.

List every dime you’ve spent on your adult children in the last six months, and then schedule an appointment with your advisor and crunch the numbers.

He or she will show you how the money is adding up, both in the short term, but also in the long term, with perhaps tens of thousands of dollars lost in interest over time.

Don’t be embarrassed. Most parents have been there.  

That said, if your contributions to your healthy adult children are modest and you’ve saved exceptionally well, your advisor can calculate the short and long-term impact and, who knows? Maybe you have nothing to worry about.

First, be sure. Second, don’t wing it.

Work with your advisor to crunch the numbers, and please make sure you supply an accurate accounting of what you’ve been spending.

3. Emergencies will probably happen

We all have talents. But while some folks will never be great with numbers, budgeting, or finance, I have found, almost across the board, that virtually everyone can improve their relationship with money.

Once you begin setting financial boundaries with your children, you can probably expect “emergencies” to pop up. (And potentially keep popping up.)

Most people aren’t going to say “no” to a bridge loan to help keep a child from being evicted, but after one or two months, if there’s no end in sight, they might need to make other arrangements.

The fact is that virtually everyone who knows a check is going to arrive each month will make different money and professional decisions than those who feel financially insecure. It’s human nature.

Sometimes, especially with young people, a lack of choice is a great motivator.

4. Tax considerations and direct payments

If your child is financially irresponsible, has some worrisome habits or, unfortunately, an addiction, rather than give them cash, arrange to make any payments directly to the landlord, repair shop, or healthcare provider.

And how's this for a twist: Some parents who have saved exceptionally well may actually be giving their responsible children too little. People with a large amount of wealth might want to consider gifting money each year to their children to lower the future taxes on their estates.

5. Creating a plan could help your other children and save your marriage

Obviously, our children don’t all travel through life the same way. Some kids sputter and stall and then launch in their 30s. Some launch at 16. Others never launch, at all.

However, if you’re footing the bill for your less-organized child, and you have other children who hit the ground running long ago, that’s going to cause friction.

First, in the minds of your other children – a place where they sacrificed everything and are solely responsible for all of their success (with no help from, ahem… anyone) – they worry about having to support their less responsible sibling, or, perhaps someday, maybe even you.

Second, not always but typically, even long-time partners who are usually on the same page may have slightly different points of view about how much financial support the kid really needs. Just be open and transparent. I have seen some marriages threatened by the discovery that one partner is secretly funneling money to a child without the other’s knowledge.

Your children aren’t the same. There is no one size fits all approach to nudging an adult child toward more responsibility. It’s complicated and takes planning.

We can help.

If you’re worried that you’re spending too much money supporting an adult child, start by working with your advisor to, first, analyze the numbers and see how it’s impacting your current and future finances, and, second, based on those findings, work with him or her to formulate a plan.

While not easy, knowledge is power, and I am confident that by having that knowledge you’ll be doing both yourself, and your child, a huge favor.