How to Enable Your Adult Children to Create Financial Independence
Supporting Your Adult Children Can Strain Your Finances and Endanger Your Retirement| By: Randall E. White, CFP®, RICP®, CRPC®, CMFC®
As a parent, you’ll likely do anything for the health, safety, and security of your children. For many parents, this translates into financial support – oftentimes long into adulthood. For several years now, there has been an emerging trend among young adults needing to rely on their parents for financial help to varying degrees after college. Now, COVID-19 has made the job market even more volatile for younger, less experienced members of the workforce.
While it’s important to support your loved ones, you need to find a balance between softening their landing and protecting your own financial security – especially your retirement nest egg. Below you’ll find six strategies to protect yourself and encourage your loved ones to create financial independence.
Strategy #1: Enable Financial Independence, Not Reliance
A fundamental question to ask yourself if you are giving support to an adult child is this: Does my support act as a ramp to financial independence, or is it acting as a net that prolongs their reliance on me?
Instead of supporting your kids on a month-to-month basis, consider providing them with a one-time boost to help them achieve a financial leg up instead. Paying their rent for several years may be a boon for them, but being able to help them with a down payment on their own house can give them an even larger leg up and help promote their financial independence. It puts them in a position of responsibility and strategically places them in a vantage point of stability from which they can focus on other expenses and life goals.
In addition to helping with a down payment for a home, there are several other one-time opportunities to help your kids. Consider assisting with post-graduation costs, like continuing education or vocational training. It will be an added investment in their future and, if they can avoid loans, that will be an additional leg-up. Other possibilities are helping them to buy a car or paying for a big move they make either out of the house or relocating for work. These one-time payments can help protect against continuous giving and provide singular opportunities for your kids to grow and become more independent. You might also consider agreeing to pay just one monthly bill, such as a car payment or insurance.
Strategy #2: Set Boundaries
So, you’re making monetary contributions to your children, but do you know where the money is going? If you don’t, you’re not alone. Many parents are unable to say precisely which bills or expenses they’re helping their adult children pay. However, it is essential to know exactly where your money is going. Knowing this will give you a better idea of where your child needs support, and it will allow you to make sure you are targeting the things that are needed and not just wanted. Setting the boundary on only paying for necessities gives them the understanding that you aren’t simply financing their desired lifestyle upgrades. It can be a great motivator for them and decrease the length of time you’ll need to continue offering financial support.
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Strategy #3: Practice Tough Love
Practicing tough love can be one of the hardest parts of parenting, even once your children become adults. It’s natural to want to be supportive, but if they aren’t making an effort at financial independence then you may need to consider putting your foot down. They may not truly realize they are taking advantage of you, so having a conversation about financial independence can create more clarity for everyone.
Do your best to help your children avoid situations where they are neither working nor going to school. Starting work anywhere can have benefits, even if it’s not your child’s dream job. In fact, entry-level “survival” jobs often lead to business connections, skills, and a knowledge base that pays dividends in the future.
Tough love is challenging, but it provides your children with an opportunity to develop accountability and move toward more financial independence.
Strategy #4: Consider Family Contributions
Even if your children are unemployed or just beginning their careers, remember that they can still contribute something meaningful in return for your financial support. You will be helping them, and in return, they can help you in other ways. It’s the least they can do, especially if your support delays your retirement date.
If your kids live at home, a contribution can be as simple as asking them to help cook some of the meals for the family or to help with various chores and errands. You can also ask for monetary contributions to go toward rent or food. Paying you a small fee for rent can act as a lesson in budgeting on a smaller scale before they become completely financially independent. Even if you can afford to support them, collecting a small monetary contribution can still be helpful. Consider setting it aside in either a savings account to be given to them when they move out, or you can create an IRA in their name to get them started on their savings toward retirement.
If your adult children are not living at home, consider other ways that they may be able to contribute something of value to you. If you own a small business, for example, consider whether they possess skills that may be useful to you, like design, website maintenance, or social media management.
Strategy #5: Only Give What You Can
If you take any of the advice in this article, let it be this: never give above your means. As tempting as it is to make life easier for the people you love, doing so at your own expense is never a good idea.
Sit down with a financial advisor and look at your retirement portfolio versus the bills and projected additions to your budget from supporting your adult children. Consider that, although you may be contributing only small amounts to your kids, that money would have considerable growth potential if invested in your retirement account instead. Looking at the actual numbers and their toll on your retirement can be extremely enlightening.
Although many parents are used to sacrificing their own comfort for that of their children, resist the temptation to support them to an extent that creates a financial hardship for you. Remember that, even though they may be struggling in the present, they have a much longer earning potential than you do.
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Strategy #6: Keep an End Date in Sight
It’s important that you have an exit strategy from the beginning, and that your kids know they can’t rely on your financial support forever. The best way to keep the lines of communication open, and expectations in check, is to discuss finances as a family – and to do it often. It allows you to be honest with your kids about how supporting them affects your own financial goals. It also grants you an opportunity to become their financial coach.
Through leading by example and bringing your adult children into the discussion, you can teach them how to run a household, budget, manage debt, and even career advancement skills like asking for a raise and knowing what they’re worth.
Concluding Thoughts on Enabling Your Adult Children to Create Financial Independence
As a parent, you’re engaged in the constant balancing act of trying to support your children when they need it and encouraging them to need you less. If you’re becoming concerned that financially supporting your adult kids is negatively impacting your retirement plan, try implementing the strategies above so that you can provide support in the present and protect your own future at the same time.
Securities offered through Triad Advisors, LLC, member FINRA/SPIC. Advisory services offered through TriCapital Wealth Management, Inc. TriCapital Wealth Management, Inc. is not affiliated with Triad Advisors, LLC.