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How should parents financially support adult children?

Life Stage Insights

Life Stage Insights

How should parents financially support adult children?

Six steps parents can take to financially support their adult children while safeguarding their own finances.

Six in ten parents are giving their children a financial helping hand
  • Increasingly, parents are recognizing that providing financial support to adult children can be an important consideration for their financial planning.

  • Among parents with adult children, about six in ten say they have helped an adult child financially in the past year.(1) Some are offering financial support to meet a one-time need or financial emergency, while others are providing ongoing assistance to their children over the course of many years.

  • The amount of support can be significant. Three in ten are paying out more than $5,000 each year.(1) Among wealthier families, the sums can be far higher.

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What are the potential challenges and risks of helping out adult children?

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  • Many parents say they are happy to be able to help out, but providing assistance to adult children without proper planning can pose significant complications and risks.

  • Thirty percent of parents say helping out their children is creating unwanted stress.(1)

  • Providing help to adult children raises important issues, such as: Are we providing the right amount of support to our children? Is providing financial assistance to our children putting our own retirement security at risk? Are we unintentionally standing in the way of our children learning financial independence? How long should we provide support to our children? Have we sufficiently coordinated and communicated our plans to provide financial assistance with each other, our other adult children, and other family members?

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What are some strategies to help out adult children?
  • Create and maintain a budget for how you are helping out. Develop a list of the ways you’re planning to contribute, including rent, cell phone bills, health insurance, or simply writing an occasional check. You may be surprised how these items add up, and it’s important for your child to recognize how much support they are receiving.

  • Balance your desire to help your adult child with your own financial security. While adult children have many years to accumulate savings, parents have more limited time to earn and save for their retirement years. Giving too much may jeopardize your own future needs and retirement security, and could require you to rely on support from your adult children in the future. Assess your own long-term goals, and what you might have to give up to provide support to your adult child.

  • Agree what your adult child will provide in return. Discussing upfront what you both expect can reduce the risk of miscommunication and potentially harmful misunderstandings. If you are providing a loan, make sure the terms are clear, and get them in writing. If you are paying education bills and expect your child achieve certain grades for continued support, make that clear. If a boomerang child has moved back in with you, set clear ground rules, such as contributing to cooking and cleaning or chipping in for rent, utilities, or groceries. This will help teach your child responsibility and accountability, and a simple but important lesson: nothing comes free.

  • Focus on providing support that will help your children help themselves. Helping pay for education, moving costs, even seed money to help get your child’s business off the ground can help lay the groundwork for future success and independence. Reserving your assistance primarily for needs, not wants, will also motivate your child to work for a better lifestyle.

  • Create an exit strategy timeline. You might time the end of your support to a life event, such as graduation,  getting a new job or achieving a certain income level, or your child reaching a certain age (on average, parents helping adult children felt children should be independent by age 25, but acknowledged their children might not be independent until age 30).(2) Rather than cutting off funds all at once, you might taper off support over a number of months. Let your child know that by ending support you are helping them establish their independence. Explain what providing support has been costing you and the trade-offs you have had to make. Many children don’t realize the impact, burden, and stress on parents who are providing support. Discuss and agree under what specific circumstances you will re-start support, if needed.

  • Continue to provide advice and guidance. Since you have been providing financial support, you have likely been having talking with your child about money, debt management, and financial planning more than most parents. By keeping these conversations going you can help your child set the right course for financial independence. You may also consider setting a meeting for your child with a financial advisor to have a solid start on their financial life.

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references

1. Pew Research Center, “Family support in graying societies.” May 21, 2015

2. Time, “How to avoid paying for your kids forever.” September 10, 2014

Disclosures

This publication is designed to provide general information and is for discussion purposes only. The effectiveness of any strategy is dependent upon each individual’s facts and circumstances. This article does not provide legal, tax or account advice. Because of the possibility of human or mechanical error, the accuracy, adequacy, completeness or availability of any information is not guaranteed.

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