The Parent Dilemma: How to Help Your Kids Financially Without Derailing Your Retirement
As we wrap up graduation season, I know parents and grandparents are dealing with a whole bunch of emotions: pride, excitement, sadness, relief, hope, and concern. And as you experience all these feelings, you may feel moved to do what you've always done throughout that child's life: help.
But whether we're talking about major life milestones or financial market volatility, that intersection of emotion and money can be a very tricky place to navigate. Today's generosity could have significant long-term consequences that might hold your adult child back from real adulthood and dent your retirement plans.
Make sure you and your spouse discuss these issues and work out a plan that will truly support adult children without sacrificing your other financial goals.
Understand what you're feeling.
By any estimation, it's tough out there for young adults right now. Interest and mortgage rates are up, making it tough to buy a car or a first home. The job market is very competitive, as are the day-to-day politics of getting ahead if you are employed. Social media amplifies pressures to keep up with the Joneses. And as more and more young adults put aside socializing and marriage to focus on career stability, they're often facing new life challenges without a strong network of friends who can empathize with them and offer support.
While it's important to be mindful of these issues, it's just as important to manage your emotional response to them before you give an adult child financial support.
For starters: Are you considering this gift from a place of positivity or negativity?
Chipping in for a downpayment on a house or covering moving expenses can certainly relieve some financial pressure as a young adult is trying to find their footing. These gifts can also be extremely rewarding for parents and grandparents who have the means, especially if you already have money earmarked for a child in your legacy plan.
On the other hand, saying "No" might make you feel guilty, or, if you really don't have any money to give, like you're not a good enough parent or grandparent. Letting these negative feelings lead you to a gift you can't or don't want to give could throw your entire financial plan out of balance and seriously damage your family relationships.
When will it end?
Some financial gifts help young adults avoid debt, save and invest more, and take important first steps toward their own financial plans.
Others create expectations, fallback options, and safety nets.
You might feel good about helping your grandson buy the car he needs to get to work. But how are you going to feel if he gets rear-ended and asks you to help him pay for a repair?
Helping your daughter get out of credit card debt probably took some weight off both of your shoulders. The first time. Now that her balances are out of control again, do you really want to write another big check?
For too many big-hearted parents and grandparents, "Yes" is always the default answer. But a child or grandchild who knows you'll always bail them out has less incentive to get their lives and finances in order.
Solving a loved one's problems with your money may also, eventually, create money problems for you as well. The money you spend on your kids is money that's not compounding in your savings and investment accounts. Decades from now, if you need help with housing or a medical issue, will your kids and grandkids be able to help you? Or will they still be buried in their own bills because they never learned how to take care of themselves?
Support without sacrificing.
Before you give money to your kids or grandkids, ask yourself:
Can I afford this gift without affecting my long-term financial plan?
If the answer is "No," then you should give your child or grandchild the same answer.
Is this a one-time gift or am I offering ongoing support?
Establish clear boundaries for what you are and aren't willing to do.
What are the terms?
Instead of giving your young adult an outright gift, offer a loan with clear repayment terms. Charging annual interest might get your money back quicker!
Instead of providing a full down payment on a house or car, offer to match their contribution.
Instead of writing a check out of your disposable income, explain that this gift is being deducted from their inheritance in your estate plan.
If your adult child still can’t balance their books, tell them you’ll only help if they start working with a financial advisor.
How will this affect family dynamics?
Your responsible son might not need any money from you, but that doesn't mean he won't resent another bailout for his irresponsible brother. These kinds of tensions can tear families apart and could linger long after you’re gone.
How else can you help?
Paying for a year’s rent isn’t going to help an underemployed grandchild solve their real problem. Open up your personal and professional network to see if you can help them make some meaningful connections. Or, offer to pay for career counselling or a professional certification that would open some more doors.
Family is part of the plan.
Deciding how and when to help family is an incredibly personal decision. To get the best results for you and your loved ones, you should consider a personalized financial plan.
Come meet with the Keen Wealth team and we can discuss how our comprehensive financial planning process can accommodate a wide variety of giving strategies while keeping your retirement secure.
About Bill
Bill Keen is a financial advisor with over 30 years of industry experience. As the founder and CEO of Keen Wealth Advisors, a registered investment advisory firm, he focuses on providing personalized retirement planning designed to help people thrive before and during their retirement years. With a passion for educating others, Bill regularly blogs about retirement planning, hosts the podcast Keen on Retirement, and has contributed to Forbes, U.S. News and World Report, Reuters, Wall Street Journal’s Market Watch, Yahoo Finance, and other publications. Based in Overland Park, Kansas, Bill and his team work with clients throughout the greater Kansas City area and across the nation. To learn more, connect with him on LinkedIn or visit www.keenwealthadvisors.com.
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