By Rebecca Kennedy, Financial Planning Association of Colorado
With more adult children returning to “the nest” in their 20s, many parents have had to provide financial assistance to their sons and daughters for longer than they ever expected. Even when an adult child lives independently, they sometimes still rely on mom and dad for help making ends meet or affording some of life’s luxuries.
Most parents are at least somewhat aware of the problem this presents as it pertains to their child’s ability to learn to function as an independent adult. But they are unaware of some of the unintended consequences.
First, the obvious problem: Continuing to provide support without a set end date creates a crutch for the child that allows them not to learn how to provide for themselves, delay gratification, or distinguish and prioritize their “needs” and “wants.” I’m not advocating that your child go without food, clothing, and shelter. But as a financial adviser, I have seen many clients, who are the parents in these situations, lose their sense of perspective.
We are all guilty of blurring the line between needs versus wants. When it comes to parents helping their children, I’ve heard every justification in the book. They cite safety as a reason their child needs help paying rent to live in a new apartment building in an expensive area of town. Or, the need to stay in communication with their child translates into keeping him or her on the family cell phone plan, for which the parent pays.
These actions stem from a good place, but is this more helpful or more hurtful in the long run? Parents need to take a long-term perspective here and assess honestly whether their financial assistance is delaying the development of a necessary set of skills. Eventually parents may be unable to help financially. Teaching your child to become financially independent is one of the best tools you can equip them with for their adult life.
The second issue is the financial strain this can place upon the parents. Most financial advisers have at least one story where their clients would have been financially secure for their own retirement if it weren’t for the burden of providing for their children, who seem to suffer one money problem after another.
Parents rarely convey the negative impact of helping their adult children, either because they don’t want to place guilt or additional burden upon their children, or because they don’t realize the severity of the impact themselves. Often, the financial help provided comes in smaller consistent increments rather than one big lump sum. Both can have a negative impact upon one’s financial security. The only difference is how quickly and obviously this impact occurs.
A third consideration is the effect upon the family dynamic. Helping one child can create strained relationships among siblings, even if the other siblings are doing well financially. It’s because, on some level, we equate gifts with love. Helping one child more than another can feel like favoritism by the parents. Even if the financially stable children in the family would refuse the money, I recommend that a similar offer of help be extended to them.
For parents of teenagers, the best thing you can do is communicate with your children about money and the length and amount of financial support you are willing to provide. For example, it may be OK that the child moves back home after college if they are actively looking for work and contributing to the household by doing chores and/or paying a modest amount of rent. A reasonable timeline for this living situation can jumpstart the child in their career rather than allowing them to wait for the perfect job in the corner office.
For those already supporting adult children, turning the tide is tougher but not impossible. It begins with communication and setting realistic, agreed upon expectations. Most importantly, it ends with sticking to those mandates.
Rebecca Kennedy is a Certified Financial Planner and founder and principal of Kennedy Financial Planning, a project-based and flat-fee financial planning practice in Denver.