This is part of a series of stories offering help with "Hot Topics": tricky family conversations that have real financial impact.
Deciding when to let your children stand on their own can be tough, especially when they’re contending with student loans, underpaying jobs, or sky-high rents. But easing your kid’s entry into adulthood could be undermining your own financial security -- a Money survey found that 30% of parents spend at least $5,000 a year helping adult children.
Get on the same page with your spouse to end your giving the right way, so you can break the news in a way that won't cause your child to stumble.
A quarter of parents have taken on debt to support adult children, a NEFE study found. Separate research from Bank of America Merrill Lynch found that 60% of parents would keep working longer to support adult children.
That Merrill study found that more than a third of parents didn’t know what expenses they were actually covering. “Parents don’t always have a good sense of the continued support they are giving,” confirms Charlotte, N.C., financial planner Cheryl Sherrard.
Create a list of all the ways you’re helping financially. Include any bills that you cover directly, like rent, as well as family cell phone or health insurance plans -- and work with your spouse to itemize any other handouts.
"I think we need to cut back on the amount we still spend on Bill. He’s 25 now and I think he needs to become self-sufficient. And frankly, I’m not sure we can afford it for much longer."
Stemming the flow of funds to your child is really about two issues: your child’s ability to become independent, and your own financial well-being. You need to discuss both any trade-offs you've made -- sacrificing a year of retirement or necessary home repairs, say, or even miring yourself in debt -- as well as your child’s attitude toward any money you’ve already given.
“I know you want to keep helping him until he has a more stable job, but I think he needs to make his own way. He’ll act more responsibly if it's his money on the line and it would free up money we need for our retirement.”
Your spouse may not see the giving as a problem, or may think your child is still young enough that it isn’t yet a real issue. Spell out what troubles you about the support you’ve given so far. “You need to be clear about what is motivating you,” says Ruth Nemzoff, author of Don’t Bite Your Tongue: How to Foster Rewarding Relationships with your Adult Children. “Often times it comes down to deeper philosophical differences. … Some may feel the best way to help a child is by giving help financially while others think letting your kid pull himself up by his own boot straps is best.”
You'll need to present a united front, says Nemzoff. You can’t have one spouse undermining the other by slipping money to your kid on the side.
Quell some worries by agreeing in advance about the extenuating circumstances under which you'd jump back in, says Nemzoff. (A medical emergency? A cousin's destination bachelor party?) Another talking point: How is this giving affecting other family members? Older siblings may resent not having gotten similar support, while younger siblings may expect they’ll receive the same handouts.
Another approach: Use the numbers you’ve collected to remind your spouse exactly what this support costs you. You’ll have a much better shot at overcoming that nurturing instinct if you can show how it puts other major life goals at risk.
“I'm worried that, if we cut Elizabeth off completely, she'll fall into debt or wind up in other trouble. But I think we’ve got to set an end date.”
The biggest thing spouses disagree on is how long they’ll give support, says Anchorage, Alaska, financial planner Michael Branham. You both may agree on the general principle, but unless you lock down a clear timeline, your exit strategy may never become a reality.
In general, avoid making your kid go cold turkey, says Sherrard. “Ideally, you should wean your children off a little at a time.” The one exception, she says, is if you simply can't afford the handouts. Don't going into debt or miss your own bill payments.
Try timing the end of your support to a life event -- like college graduation, a birthday, or a new job. Or set a time frame, Branham suggests -- tapering off over three to six months. Decide which expenses you’ll cover during this transition period, and when you’ll shift each one over -- and avoid cash handouts. Each month, ideally, you'll increase the amount your kid is responsible for, until your outlay is zero. This gives her ample time to adjust to all her new financial obligations.
Once you’ve reached an agreement, you’ve got to break the news to your kid.
“We’re happy we could help you out, but we now need to focus on our retirement. We know you’re capable of becoming financially independent. To help you, we’ll cover the security deposit and first three months of rent at your new place.”
Let your child know that by by ending support, you’re not trying to shame or guilt trip her, but rather are helping her take a step forward, says Nemzoff. Explain the tradeoffs you’ve had to make, such as decreasing retirement savings or delaying needed home repairs. If kids knew the impact this support had on their parents’ financial well-being, “most adult children would make different choices -- or at least be more receptive to not causing further trouble,” says Branham.
Then lay out terms. Spell out what short-term support your child can expect from you, as well as your expectations for the long term. Drill home the deadline for this change.
Focus the final months of support on setting your child up to help herself. You could designate one-time bounties intended to jumpstart an independent life -- providing a security deposit, furniture for a first apartment, or a new work wardrobe, for instance. You can create a savings incentive by offering to match a share of what she socks away. If you’re worried about financial management skills, consider treating her to a session with a financial planner.
Whatever you decide, stick with it. You want your child to rise to the occasion and not assume that you’ll swoop in with a safety net whenever it's needed.
Make it clear that while you are ending financial handouts, you're not ending emotional support. Let your kid know you’re available to help tackle budgeting problems, student loan repayment calculations, networking blunders, and other challenges. They’ll be tackling many thorny money issues for the first time, and there are several smart ways to lend a hand without doling out cash.
With an end date fixed, it’s time to plan how you’ll use the funds that previously went to your child. Consider diverting this money to plug existing holes -- from debt to lackluster retirement savings. You’re already used to doing without it and, by putting the windfall to work, you have an opportunity to fast-track your own financial fixes.
ONE FAMILY'S SOLUTION
“One couple I worked with had different ideas about whether to help their son out with law school,” says Nemzoff. “One parent felt the child should pay for the education. He thought the son needed to have some skin in the game. The other parent thought it was ridiculous to make the child take out student loans and pay such high interest when they could afford to help.
The compromise they reached was that they would pay 50% of his tuition and he would pay the rest plus any other expenses. This way the child was still contributing but didn’t have to take on all that debt. They also had the child do a verbal agreement -- saying that if they funded this, then he had to finish the program.”