“Don’t Let Your Grown Kids Ruin Your Future,” the headline of a Jan. 8, 2012, Wall Street Journal article read. As a certified financial planner, this article really resonated with me, as a number of financial plans that our firm had recently completed indicated that several clients would not be able to retire within a reasonable time frame. The depressing findings were not due to the clients’ financial missteps for their own benefit. No, the dismal results were due to the amount of continual financial assistance they were providing their adult, gainfully employed children.
Granted, it’s tough not to help when “the kids” are out of work, out of money or maxed out. But in some instances, parents are so concerned about helping their adult children that they fail to remember that their own retirement accounts may just now be recovering from the recession, their earning potential may have leveled off, and their pensions have perhaps been reduced or eliminated entirely. It is also quite possible that these same parents haven’t saved, as they should have, for their own financial future.
Certainly, in the event of a financial emergency, assisting an adult child for a short term, even in the form of a loan, is not completely unreasonable. But in some cases, well-meaning parents willingly sacrifice their own financial security for an adult child who is living way beyond their means.
Take this extreme case in which an adult child had been extremely profligate. Recently referred to our firm, the 57-year-old clients had paid their 34-year-old child’s mortgage payments, credit card payments and car loans for three years. The calculations in their financial plan indicated that if they continued to support their liberally spending child, they would be out of money themselves in less than a decade.
Indeed, for the clients, these findings were very sobering, if not shocking. After some coaching, the parents decided not to assist any longer their child, who had a high-paying job, was enjoying foreign travel and continuing to run up credit card bills.
A 2011 Ameritrade survey indicated that almost 57 percent of the boomer parents interviewed were willing to support their adult children, even if that meant it would decrease their own retirement funds and thus extend their retirement date. As Ruthie Ackerman wrote in her Wall Street Journal article, “Yet even boomers who aren’t financially coddling their children are having a hard time making ends meet in retirement. Fifty-five percent of boomers now plan to retire later that they originally expected, according to the [Ameritrade] survey.”
The U.S. Census Bureau indicates that 59 percent of men and 50 percent of women ages 18 to 24 live with or are supported by their parents. Moreover, 19 percent of men and 10 percent of women ages 25 to 34 are also either living with or supported by their parents.
Of course, these statistics reflect the sluggish U.S. economy, but, no doubt in some cases, parents may be making it too easy for their adult children to stay at home, thus further jeopardizing the parents' own future. Even the recently hatched condor chick at the Safari Park will start to fly and leave its nest at six months.
As we tell our clients, “Put on your own financial oxygen mask first before you help your adult children.” Here are some tips to avoid putting your financial security at risk by taking perpetual financial care of your adult children:
· Be sure you can pay your own expenses before offering to pay for any of your children’s expenses.
· Set limits and tell your children what you can and cannot afford and for how long you can manage to help them. What works well is to tell your children that if you continue to assist them financially, at some point you may have to move in with them. That generally gets their attention and may motivate them to either find a job or control their own spending more. If they are living at home, insist that they at least take on some of the household chores, if they can’t pay rent or pay for their groceries.
· Don’t be afraid to say “no” to your child. It is a complete sentence, and being honest with them about putting your own retirement savings at risk for their benefit can be an eye-opening conversation.
· Revisit your assistance plan. If you have gone overboard “helping here and there” and find out your money is mostly “there,” back down on your assistance, revisit your own retirement planning, and get back on track with funding your own retirement.
· If you have more than one child, ask yourself if it’s really fair to assist just one child, potentially spending down some of your estate that is to be shared equally among your children.
· Tell your children it’s time to financially grow up; unless the child becomes accountable themselves, how will they manage without you or your funds when those are completely depleted?
If this sounds like tough love, perhaps it is. A better way to avoid this from ever happening is to educate your children about money when they are young. Teach them about saving, budgeting and how to make money decisions. Allow your teenager to get a job in the summer and pay for some of his or her own expenses. If you start cultivating good financial habits when your children are young, you stand a better chance of not being seen as a human ATM when they become adults.
Remember, financially enabling an adult child, who is perfectly capable of supporting themselves, may be hazardous to your own financial health.
Eddy, CFP, is president of San Diego-based Creative Capital Management Inc. and co-founder of the Family Business Forum at USD. She can be reached at firstname.lastname@example.org. Comments may be published as Letters to the Editor.