By Darrell Bryant
Times are tough for young adults these days. They face some significant financial challenges in the form of student loan debt, high housing costs, and slowly growing wages. That’s why it’s no surprise that 79% of parents help their adult children financially. (1) Blessing your children with money is not a bad thing, but it becomes dangerous when you start putting their needs ahead of your own, or certainly if they have come to believe assistance is too readily available. Many of us have come to believe that consistent relief from parents creates an unrealistic view of the real world and an entitlement mentality.
Remember when you were their age. You likely are now proud of how you solved your own financial issues, and simply lived within your means. Being short of funds only meant you needed to focus more on work and do less spending. And you never resented your parents for not offering a handout. Unemployment is at an historic low. This means work is not hard to find.
If supporting your adult children financially is disrupting your retirement plans, here are 4 ways to cut the cord.
1. Tell The Truth
Kids of all ages are used to their parents taking care of their needs, so they may not realize their reliance on you is setting you back, and not allowing them to mature. Make sure you and your adult child are on the same page so that there aren’t unrealistic expectations. It might help your child if you are honest about your financial situation. Let them see the big picture so they understand the financial implications of their choices.
This will likely be a difficult conversation, but they’re adults…they can handle it! Be as specific as possible, explaining how your financial support has postponed your retirement date or forced you to dip into your 401(k). If your children are upset, remind them that by pursuing your own financial security, they won’t have the financial burden of supporting you later in life.
But don’t just tell them they’re on their own; give them the tools they need to succeed as they take another step toward independence.
2. Give Non-Financial Support
Just because you’re halting the flow of money doesn’t mean you are cutting off all forms of support. You have decades of wisdom and experience that you can pour into them that will help them as they gain independence. Ask how you can be there for them moving forward. Could you help them look for a job? Offer to search for housing within their new budget? Maybe walk them through how to negotiate a raise at their current job? There are many ways to help your child without handing over the checkbook. Make sure they know you’re still there for them.
3. Pass On Practical Skills
Living within your means is easier said than done, but by teaching your kids how to budget, you give them a framework to make financial decisions and take ownership of their future. As young adults start their first full-time jobs and adjust to possibly living on their own or taking on more expenses, they need to learn how to look at the numbers and align their lifestyle with their income. This means ignoring society’s incessant messages that they need what everyone else has.
Setting a budget will help them stay on top of their debt, know where their money is going each month, and see how much they are saving. The first rule of financial security is spending less than you earn and saving the difference. If your adult child can master this, they’ll soon be on their way toward financial independence. While the parameters of a budget depend on an individual’s specific situation and goals, you can get your child started by giving them tangible examples of what it costs to manage a household and help them map out how they will divide their money among essential expenses, savings, debt payments, and non-essentials.
And since your adult children likely rely on technology for everything, encourage them to use a budgeting app to track their money and stay on top of their accounts.
4. Give Them Conditions
Don’t want to cut your kids off cold turkey? Give them conditions on how long and under what circumstances you’ll continue to support them. They’ll learn nothing if you hand over money without a thought. But if you introduce conditions and set a clear path for getting them where they need to be, they’ll learn to be responsible.
These conditions might include treating the money you give them as a loan. If they need money for rent, create a contract for when they’ll pay you back and what they’ll owe you in interest, if anything. If your child is jobless and needs to move back home, set a time limit to how long they can stay and how they’ll contribute to the household. The bottom line is to make them earn the money you give them so they understand the value of it.
Get Your Retirement Back On Track
Once you’ve had the heart-to-heart and have cut the money cord with your children, take a deep breath. You may doubt your decision as you see your child struggle to make ends meet, but take comfort in knowing this is only temporary. You’ll be there to emotionally support them every step of the way, just not financially.
The best gift you can give your child is teaching them how to manage money. When your children can set a steady course toward their own financial success, it helps them live within their means and helps you keep your retirement savings.
At D. Bryant Retirement Strategies, we believe that it’s never too late to get your finances in order, so whether you want to check on your progress toward retirement or your child needs some help setting a strong foundation, we are here to help. Call us at (402) 932-2141 or email email@example.com to get started today!
Darrell Bryant, CFS®, CAS® is Omaha’s Retirement Strategist. As the founder of D. Bryant Retirement Strategies, he focuses on helping individuals and couples nearing retirement do so successfully. Along with more than 30 years of experience, he received the Certified Fund Specialist (CFS®) designation and a Certified Annuity Specialist (CAS®) designation from the Institute of Business & Finance. Passionate about helping as many people as possible in his community, he hosts Retirement Strategies Radio, heard Saturday mornings at 8 a.m. on 1110 KFAB. He has also written articles on financial planning that have been featured on Fortune.com, FoxBusiness.com, Money.com, and in the Midland Business Journal. To learn more, visit his blog, his website, or connect with him on LinkedIn.