As parents, we are hard-wired to help our children—emotionally, physically, and financially. Often, we will do whatever is within our power to grant them as many opportunities as we can afford. But, where do we draw the line? How long is too long to assist in supporting your adult children? Is your current level of financial assistance helping or hurting them? Are you sacrificing your own financial goals to do so?
What’s the Damage?
Of course it goes without saying that we will be primary caregivers and financial guarantors for our children until they reach adulthood, but more and more adult children, especially of the Millennial Generation, are relying on their parents to help pay for expenses such as student loans, health insurance, cell phone bills, and car payments, subsequently jeopardizing their parent’s retirement saving goals.
According to the April 2019 Bankrate.com survey of 2,500 Americans, 51% (more than half!) of respondents reported drawing from their retirement savings to help their adult children (aged 18 and up) either “somewhat” or “a lot.”
Initially, you may think that withdrawing a couple thousand dollars every once in a while to do what comes naturally to you—helping your children—won’t significantly affect your nest egg, but you must remember that you aren’t just sacrificing that dollar amount you withdraw, you’re sacrificing the compound interest that dollar amount could be accruing over time. Essentially, you are robbing your money of its power to earn for your future. Of course, you may find it easy to replace that amount down the road, but you won’t be able to recover that lost earning potential.
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Is This Americans’ “New Normal”?
So why are parents footing their children’s bills for longer durations and/or with more frequency than did parents of previous generations? Some may argue that the phenomenon results from the generational tendency to “helicopter parent,” while others cite the popularity of seeking high-level degrees.
According to Mark Hamrick, Bankrate’s senior economic advisor, Millennial and Generation X students feel no sense of urgency to enter the workforce. With students staying in school for longer periods of time to pursue high-level degrees, they prolong receiving an income but still have living expenses to cover. This is where mom and dad step in to facilitate their children’s ultimate goal of higher education.
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Replace Monetary Assistance with Financial Education
Regardless of why financially assisting adult children has become so prevalent, it’s important for parents to keep their retirement priorities on track. Setting healthy boundaries and offering financial education may be the first steps to breaking the cycle and re-prioritizing retirement goals.
Even if you feel that intermittent, short-term assistance isn’t doing much harm, your help could be hampering your child’s own journey to financial independence. Perhaps offering financial education is the better, more prudent alternative to offering a check.
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Sitting down and with your child and going over their budget while teaching them where to cut costs could significantly reduce their monthly output as well as educate them on how to allocate their funds to necessities over luxuries. Suggest they download one of the free budgeting apps, such as Mint or PocketGuard, to help monitor their progress. Not only will sound financial education encourage your child to take pride in their newfound independence and accomplishments, but will help them build the self-reliance needed to navigate tough money situations in your absence.
Northstar Financial Planning is a family-oriented advisory firm dedicated to assisting all members of your family on their journey to financial wellness. Should you need assistance guiding your adult child by way of finances, feel free to check out our upcoming events on our website for financial class opportunities and schedule a call to set up a complimentary Get Acquainted meeting. We look forward to helping you prioritize your retirement goals while helping you educate your adult child on financial independence.