Most parents want what’s best for their children, no matter their age. But once kids reach adulthood, many parents find themselves wondering whether or not they should cut the financial cord and what their role should be when it comes to money management. While you may feel obligated to give your adult children money when they need it, you also want them to become financially independent for their own good. So when should parents stop paying, and how can they set their adult children up for a lifetime of success?
Millennials and Generation Z are more likely to be saddled with more student loan debt, a higher cost of living, comparably lower salaries, and less job security than their parents and grandparents. It has become increasingly common for parents to continue assisting their kids financially as adults. But while monetary support can provide a short-term lifeline, this approach can actually backfire over time.
The High Cost of Giving Adult Children Money
As a parent, you’ve likely grown accustomed to making your children a priority and putting their needs ahead of your own. But whether you are paying a cell phone bill, covering rent, or keeping the kids as authorized users on your credit card, it might be time to reconsider.
Every dollar you give away adds up, and as you get older and closer to retirement, it’s important to focus on your own long-term needs. But if you think prioritizing yourself seems selfish, think again. Without adequately saving and investing for retirement, you could put yourself and your family in a compromising position, placing the financial burden on your children for your care in your later years. Remember, no matter how capable you feel as a provider now, you can’t work forever, and at some point, your wage-earning career will come to an end.
In addition to the financial costs, you should also consider the emotional costs of subsidizing your adult children’s finances.
No matter how close you are with loved ones, money always has the potential to strain family relationships. If you have more than one child, one sibling might resent another getting more support. Being dependent on you may leave your children feeling as if they are inadequate, guilty, or failing to live up to your expectations. And you may begin to feel taken advantage of and underappreciated.
While you might believe continuing to offer financial support is the best way to keep your family close and show that you care, the truth is the money could be doing more damage than good.
How to Set Your Adult Kids Up for Success With Money
One of the reasons many parents continue to support their adult kids financially is because they feel like they’ve failed them. After all, if you had done a better job preparing them for the world, they wouldn’t need you to bail them out, right? Not exactly.
Perhaps you could have taught them some money management principles that were missed along the way, but chances are you did the best you could with what you knew and the resources and time that were available to you. But no matter what, it’s not too late to set them up for success moving forward.
You can continue to be supportive without enabling bad financial decisions. Rather than cut them off abruptly, ween them off your household payroll while teaching them how to manage their own money and bills. Then get to work covering the basics of becoming financial independence.
Provide a Limited Allowance
Give your adult children opportunities to learn, try, and even fail. If you’ve been paying their car insurance, have them get their own policy. If you’ve been paying for their cell phone, have them get their own plan. If you’ve been letting them use your credit card, have them apply for their own card. The costs may go up temporarily, and their credit limit may go down, but the idea is to help them get more comfortable with directly managing all of their own bills.
If you’re doing it all for them, your support is out of sight and out of mind, so it’s difficult to assess when to cut the financial cord. Providing a set allowance will allow them to see better where the money is coming from and where it is going. Recognizing that they are getting an allowance as an adult, rather than taking paid bills for granted, may also help them grapple with the reality that they’re getting parental support and work towards eliminating the need.
Have the Tough Conversation
Whether it’s pride, shame, or a desire to keep the peace, many parents who are financially supporting their adult children hesitate to broach the subject with them. But it’s best to be forthright, honest, and clear about where you stand.
If you are financially comfortable and the assistance truly isn’t a burden, the conversation may focus on the dignity of financial independence, the freedom wealth management can provide, and the importance of responsible stewardship — not just in abstract terms, but in ways that align with their life goals.
If you can’t easily afford to offer monetary assistance long-term, let them know the numbers, how the extra costs are putting your retirement in jeopardy, and what this could mean for the future. Help them understand that you are looking out for their best interests but are limited in what you can offer.
Find Other Ways to Be Supportive
Keep in mind that you have more to offer than money. It may be more helpful to sit down together and talk openly about the challenges your kids are facing in life, in a non-judgmental way. There’s no denying that the world has changed since you were in their shoes. The emotional weight of financial strain is a difficult burden to bear, and if they weren’t prepared for it, their confidence and self-worth might be taking a hard hit. A listening ear and a shoulder to lean on could be more valuable than cash.
You can also support them directly in ways that don’t require you to come out of pocket. Maybe you could give them an old car you aren’t using, pitch in with babysitting, research the best deals for them when they need to make a major purchase, or even welcome them back into their old room temporarily while they pay off debt.
Teach Financial Literacy
If your adult child left the nest without learning financial literacy, there’s no reason to feel guilty, but there is reason to take responsibility now. Unfortunately, in nearly every case, school doesn’t teach them anything about personal finance; they graduate without knowing how to budget, manage their credit, pay bills, or do their taxes.
One of the best things you can do for them is to help create a realistic and manageable budget. From there, you can help them brainstorm ways to cut expenses and boost their income. The number one goal should be to build an emergency fund as a safety net as quickly as possible.
You’ll also want to teach them about managing debt. From student loans to credit cards, many young people are entering adulthood with more excessive debt than ever. Make sure they understand the importance of paying debt down as aggressively as possible and how to use credit responsibly.
Another important tip is to teach them about taxes. It may not be a fun topic, but it’s one none of us can avoid. Leaving it all up to an accountant or tax preparer can be a big mistake, as everyone needs to understand things like deductions, withholding, credits, estimated taxes, record keeping, and more to avoid paying too much or getting into trouble.
Finally, they will benefit from learning how to invest wisely. From maximizing their employer 401(k) plan to opening their own investment accounts, the younger they are when they begin investing on their own, the better. Retirement may seem far off, but the sooner they start, the sooner they can take advantage of compounding growth and prepare for other financial goals along the way.
The Bottom Line
You should be proud of everything you’ve accomplished as a parent. Nobody gets child rearing exactly right, and no adult child is perfect, no matter what their parents post on social media. You’ve done well, and you can do better, starting today. There’s still time to help your grown-ups grow into financially independent and thriving adults, and if you face the challenge objectively and honestly, you’ll know exactly when to cut the financial cord.
John J. Diak, CFP® is the Principal & Client Wealth Manager at Oatley & Diak, LLC in Parker, Colorado. He assists clients through many difficult lifestyle changes such as business downturns, retirement planning, divorce, the death of a spouse, and family estate issues among others. Oatley & Diak, LLC is a family-run registered investment advisory (RIA) firm that provides clients with investment management and financial planning services in a hands-on, intimate environment. Learn more about them at oatleydiak.com.
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.
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