Helping Adult Children Financially – Protect Your Own Financial Health

Many of us have heard the instruction to “Put on your own oxygen mask first before attempting to help others around you” on an airline flight. The same idea makes sense when it comes to helping adult children financially.

You’d Like to Help, But…

As noted in a previous Sixty and Me post, the Baby Boomer generation collectively has about $78 trillion in assets, but much of this wealth is held by the richest households. As they retire, many Boomers could find that their ability to help their adult children financially is limited. According to the ALI Retirement Income Institute:

“More than half [of Baby Boomers] (52.5%) have assets of $250,000 or less, making it likely that they will run through their savings and have to rely mainly on Social Security for income. Another 14.6% have assets of $500,000 or less, so nearly two-thirds will strain to meet their needs in retirement.”

As much as they may want to help, a substantial number of Boomers may find they cannot afford it.

For Those Who Can

Nevertheless, there are Boomer parents who are helping their adult children financially. In a survey by Savings.com, 45% are helping at least one of their grown-up kids on an average of over $1,400 per month. Not yet retired parents paid the most at $2,100 monthly, but this came at the cost of limiting their monthly retirement savings to an average of only $643.

The main expense categories were housing (rent/mortgage), cell phones, and groceries. Some parents (21%) helped with student loan payments at an average monthly amount of about $245.

Such generosity can be costly. A 2023 Credit Karma survey found over 80% of parents who helped their adult children hurt their own financial standing:

While some are willing to make sacrifices to help, the risks must be understood. For example, healthcare and long-term care costs can be significant in later years. According to LongTermCare.gov, of those reaching age 65 today, nearly 70% will require some long-term care before they die. Of these, 20% will need it for longer than five years. Therefore, overly generous financial help to adult children today could drastically impact future healthcare options.

Making Smart Choices

Here are some questions to consider about financial support for an adult child.

How Much Can You Actually Afford?

Protect your retirement savings. Think about ways to trim your expenses to free up funds.

Loan or a Gift?

If the money is a loan, it puts responsibility on the recipient’s shoulders rather than creating a sense of entitlement. Eventually, you could choose to forgive the loan. However, a gift, once given, can rarely be easily reversed.

Alternatives to Money?

Instead of giving money directly, what are other ways could you help? For example, babysitting part-time for grandkids. Think about the various scenarios and state what you are willing to do. Also, both parties should reserve the right to request changes to such an arrangement if needed.

Living at Home?

If help comes in the form of an adult child moving in with you, make sure the ground rules are established beforehand. What responsibilities does the “tenant” have around the house? Remember that this “kid” isn’t 12 anymore, so it’s important not to be overly motherly. On the other hand, your kid needs to act like a responsible adult.

How Will You Manage the Arrangement?

It’s your money, so you can make the rules about how much and how often you’ll provide funds. Meet face-to-face with your adult child, if possible, since long-distance communications leave more room for misunderstandings. Most of the time, these arrangements are temporary, so both parties should mutually agree on the conditions under which the arrangement ends.

Once you agree on the details, put everything in writing that both parties can sign. Having this for future reference rather than relying on memory will be helpful.

How Can Your Adult Child Learn Independence?

To help avoid dependence, think of ways to encourage the learning of practical life skills. For example, refer your adult child to resources for budgeting and financial planning. Also, consider providing referrals to financial coaches, financial planners, and accountants who can provide knowledgeable and objective viewpoints. As neutral third parties, this avoids the emotional baggage in the parent-child relationship.

Decisions about helping your child financially can be overloaded with emotion. While we’re willing to sacrifice for our children to help them in times of genuine need, we should also be honest about our own financial well-being. This isn’t selfish. If we maintain a stable foundation for ourselves, we’ll be better able to be there for them in the long run.

Let’s Have a Conversation:

Have you been helping an adult child financially? What terms and conditions have you set? In what ways can you help your adult children?