Helping your adult children with money

Does financial support now lead to financial independence later?

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By Rob DeHollander, managing principal, DeHollander & Janse Financial Group

As parents, we want the best for our children. Our goals are usually noble and well-intentioned: “I want my kids to have more than I had,” or “I want to give them a head start.” This is typically the rationale for helping out financially, but will it lead to financial success later?

If you’re a baby boomer in or near retirement, remember that this question will affect both you and your children. When you’re considering helping your adult children financially, ask yourself the following questions:

  1. Can I afford it? If you have enough money, you might decide to help. If, however, it places your finances in jeopardy, consider saying no. I see this a lot, and sometimes your head will need to tell your heart no. (This can be tough!)
  2. Will this help them long-term? Is this a short-term crisis or a recurring pattern? Is the need temporary or permanent?
  3. Are my children financially responsible? Is this something they need or something they want? Have your kids established a budget? If the money will not be spent responsibly, say no but employ question No. 4.
  4. Is there another way I can help? Sometimes, you’ll want to find another solution instead of just giving money. This is a great life skill, and it will foster problem-solving and resourcefulness. Remember when you were short on money? What did you do?
  5. Is this a gift or is it a loan? It’s important that both of you set clear expectations and agree to the arrangement. You may expect to be repaid while your adult child is secretly hoping you’ll forget all about it. Communication is key. Don’t get into an unspoken ongoing financial agreement. Have explicit discussions about your financial expectations, and consider putting it in writing.
  6. Is this a pattern? If you’ve been helping your adult child financially over and over, it may not be healthy or sustainable. Consider stepping back, breaking the cycle of dependence, and finding other ways to help him succeed.

Solutions to consider

Learning to live within our means can be a challenge at any income bracket, and cutting your kids off financially or enabling bad habits is a fine line to tread. I’ve seen numerous instances where providing financial resources to adult children actually harmed them rather than helped them. If you’re struggling with this situation, here are some compromises you might consider:

  • Charge rent. This seems like an easy place to start, but it can be difficult to determine an amount and stand firm on collecting it; if they can’t afford it and end up months behind, your kids won’t perceive any impact if they feel like they can owe you indefinitely. Don’t necessarily expect market value for the room, but you have the right to set boundaries that keep both parties feeling comfortable with the arrangement.
  • If not rent, pick an expense and be consistent. Between utilities, groceries, insurance, and other expenses, there are many different ways your millennial can be accountable for at least some household needs.
  • Set boundaries. Separate the wants from the needs. It’s OK to want to help your kids relieve the stress from crushing debt, such as student loan debt, but you don’t need to finance their vacations or spa visits.
  • Live within your own. Lest you want to end up on their doorstep someday when your retirement funds run out, be disciplined about sticking to your budget and savings plan.

Above all, make sure you discuss your actual spending needs as a family. If you need help, seek out your financial and tax professionals. You’ve put a lifetime of effort toward building a secure retirement. Don’t jeopardize it, no matter how well-intended your actions may be. In my experience, financial success is a learned skill taught usually by responsible parents — pass it on!

Robert DeHollander is a managing partner and co-founder of the DeHollander & Janse Financial Group in Greenville.

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