How to Stop Your Grown Kids From Ruining Your Retirement
When it's time to close accounts at the Bank of Mom and Dad
This Thanksgiving, I had a lot to be thankful for, particularly in regard to my grown children. I’m proud that my daughter and son, both in their mid-20s, have grown into smart, conscientious, good-hearted young adults. I’m grateful they still seem to enjoy their parents’ company. And I’m relieved, as they face financial challenges common to folks their age (low pay, high rent, student loans) that my husband and I have the means to help with some of their expenses.
But let me be frank: I will also be very, very thankful the day I finally close their accounts at the Bank of Mom & Dad for good.
I’ve spent decades as a personal finance journalist urging parents to prioritize saving for retirement over financial support for their grown kids — you know, the old “put your oxygen mask on first” platitude. Yet when it comes to my kids, it’s sometimes tough to follow my own advice.
In this, I have plenty of company. Two-thirds of 50+ parents have financially supported a child 21 or older over the past five years, according to research from Merrill Lynch and Age Wave. The average amount provided in a one-year period: $6,800. If instead you saved that much cash every year in a tax-deferred account averaging 6 percent annual gains, you’d have close to $100,000 more for retirement within a decade.
I could certainly use an extra 100 grand by the time I retire. How about you?
What bothers me most, though, is the niggling concern that I might be crossing the line between helping my kids and hobbling them on the path to full-fledged adulthood.
“As a parent, your job is to prepare your child to participate in the world as a self-sufficient person,” says Canadian family therapist Alyson Schafer, author of Honey, I Wrecked the Kids and a consultant to the Bank of Montreal (BMO).“The timeline depends on how quickly you give them the tools and opportunity to learn to be independent.”
If, like me, you want to wind down support without leaving your Millennials in the lurch, these strategies should help:
Switch to the No-Frills Plan
Helping Junior cover basic living expenses such as rent and utilities on a modest apartment makes sense if there’s a solid reason he can’t yet fend entirely for himself — say, if he hasn’t been able to land a job that pays a livable wage, is attending school, is paying off large student loans or has big medical bills. That’s especially true if he’s working hard to contribute as much as he can, despite falling short.
What’s not helpful in the long run: ponying up cash so your kid can afford to live in a beautifully-furnished apartment in a trendy neighborhood, take classes regularly at Soul Cycle, Uber everywhere and eat sushi and acai bowls with abandon.
“If you help your child sustain a lifestyle that’s not really affordable at his age and income level,” warns Schafer, “don’t be surprised or complain when he doesn’t learn to live within his means.”
While your offspring may press for such extras, it’s often the parent who is loath to see his or her child go without. Says Schafer: “A lot of financial help for young adults these days is about parents trying to smooth life for their kids, so they don’t have to struggle.”
Remind yourself that the struggle is how children become financially savvy and resilient; they face a challenge and budget to afford what they want, settle for a cheaper version or go without — and feel proud of their ability to figure it out.
“By always stepping in to help, you rob them of an opportunity to feel good about themselves,” says Schafer. “The message you want to send is, ‘I believe in you. You can do this.’”
In my daughter’s case, the loans she’s taken out to attend graduate school and the salary she earns at a part-time job can only stretch to cover two-thirds of the rent on a modest apartment near campus and her everyday expenses. So my husband and I have agreed to pay for the rest of her rent, as well as medical and car insurance, while she’s getting her degree. We also offered to buy her furniture — from IKEA, though, not the higher-end stuff she covets.
Uber, highlights for her hair, the aforementioned acai bowls and other little luxuries are for her to figure out.
Provide the Right Framework
A BMO Wealth Institute survey found that two-thirds of parents give money to their grown kids on a “when needed” basis, swooping in to cover an emergency or monthly bills if their offspring comes up short.
Ashburn, Va. financial planner Ted Halpern advocates that you instead work out in advance how much your child needs to supplement her income, then automate biweekly transfers of that amount from a checking account set up specifically for that purpose. Then, periodically revisit how much you’re sending— perhaps ratcheting down every three to six months — until you reach an agreed-on deadline for ending support.
By simulating the schedule of a regular paycheck, Halpern says, your child gets practice managing her own money in a way that feels less humiliating than constantly asking Mom and Dad for cash. You, in turn, get predictability instead of being blindsided by periodic requests for cash. And because you’re automating the process, you may also feel relief from the stress and anger that often comes with writing a physical check every month
Of course, true financial emergencies will sometimes crop up — your son’s car breaks down or his apartment is flooded. In those instances, you can step in with the needed cash, if you’re able. Needing to Uber home after drinking too much — not an emergency.
To improve the chance of success with this strategy, you might also pay for your child to have a one-time session with a financial planner to prep your son or daughter for flying solo. You can find an adviser who specializes in Millennial finances through the XY Planning Network. Typical cost: $150 to $250 an hour.
Plot Your Exit
To lend their adult children a financial hand, nearly half of the respondents in the BMO study said they’d be willing to work longer, a third would make do with living less comfortably in retirement and a quarter would even go into debt.
But being willing to sacrifice doesn’t mean you’re sanguine at the prospect or aren’t worried about the long-term impact. Particularly cringe-worthy: the idea that you might need to ask your family members for money one day, a concern voiced by 28 percent of those surveyed by Merrill Lynch.
Putting an end date on your largesse can help diffuse the tension that sometimes builds as you move closer to retirement and a possible shortfall in savings becomes more real.
“Adult children can’t be expected to know how ongoing support is affecting your finances if you haven’t talked to them about it,” says Erin Lowry, author of Broke Millennial and a personal finance blog of the same name. “Sometimes parents feel taken advantage of, like you’ve given the child too much rope for too long, but it’s not fair to fault the kid for not living up to your expectations of when support will end if you haven’t made the expectations clear.”
So talk to your child, a few months before you make any changes in how much you’re assisting financially, about what you think constitutes a reasonable timeline for ending parental aid — say, three months after she gets her MBA so she’ll have time to find a job, or a year from now to allow her to dig out from credit card debt and save some money for emergencies.
Says Lowry, “Providing context and advance notice cuts down resentment and gives your kid a genuine opportunity to set up for success.”
Shift From Provider to Adviser
Financial support of your adult child shouldn’t end when you stop doling out cash. Your most valuable gift is your wise counsel about money, and you should continue giving it indefinitely.
So, help your kids pick the best investments for their 401(k) and talk to them about their health insurance options during open enrollment.
Maybe introduce them to budgeting and saving services like Mint, Digit or Acorns—yes, honey, there’s an app for that.
For debt management, you might suggest the free Unbury.me app, which provides debt payoff projections and is recommended by the StudentLoanHero site. Or you could point your child to Bankrate.com, a fine site with a bushel of useful debt calculators ranging from the debt pay-down calculator to finding the best credit card.
Just wait to be asked for your advice, though.
My children, it turns out, have lots of questions about managing their money, now that we’ve gotten serious about ending our family welfare plan. And they’re delighted I have answers — as long as I remember to deliver them without judgment or lectures (hey, I’m trying).
“Mom, you’re really good at this,” my daughter told me after our latest, post-Thanksgiving confab.
High praise indeed. Thanks, honey.