Before we answer the question of whether or not you should you risk your own financial security to pay the way for your children, we all need to face the fact that, based on statistics, the majority of us are doing just that. A survey conducted last year by the investment company Merrill Lynch revealed that a staggering 63% of parents have actually sacrificed their means to a reasonable retirement lifestyle in favor of bailing out their adult children. Seventy-two percent say they have put their children’s interests ahead of what their own needs will be in retirement. By some expert estimates, American parents fork over $500 billion a year to their grownup offspring.
It is a natural, almost knee-jerk, reaction to want to help our children when they get into financial difficulty—after all we have helped them all our lives, right? But if your children depend on you too much it is not healthy for either them or you. When adult children get too used to depending on mommy and daddy’s money to pay their rent, cell phone bill, college loans, car payment, or anything else, they can quickly develop an unmotivated lifestyle where they never take full responsibility for their own finances. And, as for mom and dad, the biggest fear that retirees face is the possibility that they will outlive their money. Americans are living longer than ever. The average 65 year-old retiree will live another 20 years in retirement and 1 in 20 will live to celebrate their 95th birthday!
M. D. Jackson a college psychology professor and family counselor, (and a mother of nine adult children) in a blog on wehavekids.com suggests that you ask these nine questions before you hand over money to an adult child:
1 “Ask yourself: Can I afford it? This should always be your first consideration. If you have plenty of money, you might want to help them out, then continue to question #2. But if you can’t afford to help them without damage to your own financial health, then just say no.
2. Ask yourself: Will this money actually help? Is this a short-term crisis or a chronic condition? Is it a temporary or a permanent need? If your financial assistance will solve the problem now, then move on to question #3, but if it won’t, consider helping them find other solutions.
3. Ask yourself: Will this money be used responsibly? Will help pay for something important or will it be used on frivolous items? Is it for something they need or do they just want it? Is your child following a budget? If your help will not be spent responsibly, then don’t give it.
4. Ask yourself: Is there something else I could do to help? Sometimes, you can offer another kind of help instead of giving money. Maybe you can offer to watch your grandkids while your adult child looks for a job.
5. Ask yourself: Will it help them gain future independence? Some gifts are money well spent. Investments in furthering education and funding business ventures are smarter than helping your child take a nice vacation, no matter how desperately that vacation is needed.
6. Ask yourself: Is this a pattern? If you have gotten into a habit of funding your adult child, or if you perhaps even pride yourself on continuing to pay for them, it’s probably not healthy or sustainable. It may be time for both you and your adult child to grow up, break the cycle of dependence, and find other ways to maintain your relationship.
7. Ask your adult child: Is this a gift or is it a loan? It’s important that both of you get your expectations straight. You may expect to be repaid while your adult child is secretly hoping you’ll forget all about it. Transparency is key.
8. Ask your kid: When will you pay me back? Part of being an adult is keeping promises. Discuss a repayment schedule and make plans for what will happen if those dates are broken.
9. Ask your kid: Are you going to ask me for money again? Don’t get into an unspoken ongoing financial agreement. Have explicit discussions about your financial expectations.”
A health issue can present a special case. If your adult child is unable to work due to an impairment, consult with a lawyer or a legal aid organization to determine if a Special Needs Trust is feasible. This is a legal arrangement which can be set up to provide for a disabled adult child.
For most adult children, however, the best gift you can give them is to let them have their own dreams and let them work to accomplish them.