How to support your children without sacrificing your own financial future.
Parents are used to putting children’s needs ahead of their own. When children are small, it's often appropriate to make sacrifices for their well-being. But once they are grown, taking care of their financial responsibilities can hold young adults back from developing independence.
Even further, some parents of adult children support their children to the detriment of their own futures. Parents may jeopardize their own retirement and other goals without even realizing it.
It’s common for parents in the U.S. to give their adult children some financial support: 74 percent of Americans with children ages 18 and older said in a 2017 survey that they help their children with living expenses or debt. But not all help is created equal. To make sure you’re setting your adult children up for success with their own financial lives and to ensure you’ll have the future you’ve planned for, here are a few guidelines to consider.
Fund Your Retirement First
It can be difficult for parents to prioritize retirement savings when other financial concerns seem more immediate, such as paying for children’s college education or taking care of elderly parents. Nearly half of U.S. adults in their 40s and 50s belong to the so-called sandwich generation — those with both a parent age 65 or older and either a young child they are raising or an adult child they are financially supporting. The financial pressure on the sandwich generation is growing, in part because of increasing assistance given to adult children.
The fact is, the longer you wait to save for retirement, the harder it will be to make up lost ground because you lose the benefit of compound interest. If you skimp on retirement savings, you could find yourself financially dependent on your children later in life, a burden that few parents want to impose.
As you review your financial plan, make sure to fund your retirement accounts first. If your children expect you to pay for college or help with their student loans after graduation, have a conversation about what you can reasonably afford to contribute. Try to avoid withdrawing retirement funds for children’s education or other expenses. If you feel you must do so, consider taking a loan rather than an outright withdrawal and factor the repayment into your financial plan.
Make Your Kids Move Out
One common form of aid that parents provide is letting their adult children move back in with them, perhaps after they graduate from college or while they look for a new job. About one in three U.S. adults ages 25 to 29 lives in a multigenerational household, typically with parents, according to the Pew Research Center.
While this assistance may be well intentioned, research shows that allowing “boomerang” children to move home may actually harm their development and limit their economic opportunity. A 2018 study of 7,500 young adults by North Carolina State University found that those who lived with their parents were less successful in their careers than those who lived independently.
What if your child is currently living with you? Explain that the arrangement cannot be open-ended. If your child is employed, begin charging rent. If not, require your child to contribute to household chores. Set a realistic time limit — perhaps a few months — for your child to find a new place to live.
Set Specific Boundaries
Even independent and capable adults may need financial help from time to time because of an illness, emergency, or unexpected job loss. If you want to help your adult children under these circumstances, have a direct conversation about their resources and needs. Then, set firm boundaries — ideally, in writing — around what you are willing to provide and for how long. Don’t offer assistance that has no clear endpoint or let children assume that you will cover certain bills indefinitely. If you are married, it’s important that you and your spouse agree on these limits.
Adult children also may need help if a disability prevents them from working. Depending on the situation, it may not be appropriate for parents to simply hand over money long term. Children with disabilities may be entitled to government support, including Supplemental Security Income, a federal program, and rental assistance or subsidized housing. You might consider helping your child research and apply for these forms of aid. Another option may be to establish a supplemental or special needs trust, which can be used to help cover expenses for children with disabilities, without disqualifying them from government assistance.
Discussions about how much to help your adult children, and for how long, can be emotionally sensitive and challenging. But talking directly with your children about what assistance you choose to provide, and why, can help them understand your decisions and strengthen your relationship. A third-party professional, such as a financial advisor, also can help to provide an independent and objective perspective. Ultimately, you can help support your adult children without giving up your retirement dreams.
Find more tips for alleviating the financial burden of the sandwich generation with this checklist.
