A recent study1 conducted for Northwestern Mutual found one in three Baby Boomers (33%), the generation closest to retirement age, have less than $25,000 in retirement savings. A survey2 conducted by GoBankingRates found only 23% of Americans over age 55 had saved $300,000 or more for retirement. This age group said the biggest reason for not saving was they don’t make enough money. Saving enough is a very important part of retirement planning. Equally important is the ability to control spending. The ability to control spending should be acquired as a prerequisite for retiring.
Controlling spending is also a skill we need to teach our children. A recent poll3 by CreditCards.com found three in four parents with children over the age of 18 help them pay debts and living expenses. A 2015 poll reported 61% of parents had helped an adult child. Helping adult children pay expenses can be yet another reason some Americans are not saving enough for their retirement. Some advisers say they have even seen people deplete their retirement savings to help an adult child.
Providing financial assistance can have a compounding effect when there is more than one adult child. Some parents believe in a sense of fairness when it comes to their children. They believe each of their children should be treated equally and feel an obligation to give to their other children.
If Your Adult Child Asks for Financial Assistance
Should a parent provide financial assistance to an adult child? This is a difficult question to answer as there are many variables and each situation is unique to some degree. Kathy McCoy, Ph.D. says4 financially rescuing an adult child repeatedly sets up a pattern of dependency and expectations.
She warns that studies show parents whose adult children are heavily dependent on them are more likely to suffer abuse from their children. Physical abuse toward elderly parents sometimes stems directly from the sense of dependence and powerlessness experienced by the abusive son or daughter.
Here are some steps to take if an adult child asks for financial assistance.
Review Their Budget
Pull out the calculator before out pulling your checkbook. There is a good chance they don’t have a budget. Maintaining a budget should be a prerequisite for receiving help. Working through a budget may help them understand how they got into financial trouble to start with. Developing good budget habits could go a long way toward avoiding getting into a financial bind again. There are many online resources available to help establish and operate a budget.
Find an Accountability Partner
Staying on budget will require help from someone other than the parent. Having another person (or another couple) to help stay focused and to discuss financial problems as they arise is valuable. Look for someone who is already good with his or her finances and who is smart and organized. There are organizations like the National Foundation for Credit Counseling and the Financial Counseling Association of America who can serve as accountability partners and work through budget issues.
Many areas have non-profits that provide financial counseling at no cost. These counseling services usually run financial education classes that teach budgeting and long-term financial planning. You may want to insist that your son or daughter work with a counselor as a condition to receiving any financial help.
Plan to Stop
Before writing a check to help, there must be a plan to stop that everyone understands. A maximum dollar amount of support and a definite end date should be part of the plan. This plan is an important part of accountability. The plan will provide a way to track progress with a clear end goal that is defined.
The decision to help or not is emotionally charged, and a difficult one on which to offer advice. Remember the financial support you are considering may be toxic to your adult child. There is much to be learned by suffering the consequences of your decisions. Failing to set aside money for an emergency fund will cause suffering when the “unexpected” expense arises. Being able to run to Mom and Dad makes them the emergency fund. Helping in this situation could enable bad financial behavior. There is also value in learning to think through problems and work out solutions. Bailing out children robs them of the lesson they could learn by solving their problem and discovering what caused it in the first place. It may be time to let failure be their teacher.
Parenting is something you do for your entire life, and it’s a natural instinct to want to help your child no matter what age. Resist the temptation to repeatedly open your checkbook when they ask for help. It may be time to start treating the child like an adult.
Rick’s Tips:
- The ability to control spending should be acquired as a prerequisite to retirement.
- Developing good budget habits could help avoid getting into financial binds.
- Bailing out children may rob them of the lesson they would learn by solving their problem and discovering what caused it in the first place.
1 Internal Revenue Service Publication 4484
2 Survey Finds 42% of Americans Will Retire Broke — Here’s Why. By Cameron Huddleston. March 6, 2018
3 In 4 Parents Help Their Adult Kids Pay Debts, Living Expenses. March 23, 2018. CBS New York.
4 Five Money Mistakes Parents Make With Adult Children. Complicated Love. September 21, 2017.
