Financially Helping Adult Children

About 10 years ago, I was contacted by a Post-Gazette staff writer looking for some data for an article she was writing. The article discussed how parents were financially hurting themselves by providing ongoing assistance to their adult children. At that time, I had very few clients and cases that fit into that category. As a result the writer decided to nix the article.

Fast forward 10 years and that’s clearly not the case anymore. Whether it’s because of the debt crisis, because we want more for our children or because our children have grown up with more of an entitlement mentality, the affects on our aging population are dire. We are parents and should not try to play God in our children’s lives. It is our job to instill the best values, morals and discipline while they are under our care but once they are grown, they are responsible for their own decisions. If they make bad decisions they are subject to the consequences. In a world that seems as if no one is accountable for risks taken (take a look at corporate America and the financial system), how can we possibly teach our children responsible money management?

Regardless of the blasé attitude that we read about in the paper and hear on the news everyday regarding bailouts, it is undoubtedly our role as parents to teach our children good money sense while they are young. They need to value and respect hard-earned dollars. When they become adults, the work does not stop there. It shocks me to see case after case of adult children who view their parents as an endless pot of money. I believe they often don’t even know how they might be financially destroying their parents since the money has simply always been flowing. Many have bailed their children out of credit card debt, risk of foreclosure and addiction habits. I can with confidence say that in not one of those cases, the parents helped their child get back on their feet to be able to fly on their own. In fact the opposite is true. All they have done is enable the child to make further irresponsible decisions and delay the ultimate consequences. Most often, parents will rationalize the need to help. “It’s just this one time” or “once they get out of this situation, everything will be fine”, are common statements I hear. However, what needs to be understood is that the child is much more capable of getting back on track while the senior adult parents are not. That means if the child must dramatically reduce their standard of living to pay off debt or not lose the house, then that is what must be done. It may even mean bankruptcy or foreclosure, both of which are financially devastating. However, they can rebound. Someone who is retired living on a fixed income can’t rebound if their nest egg is spent helping children. With the current financial crisis still at hand, many seniors living on Social Security and supplementing with income from investments have taken a serious blow to their savings. Someone taking a reasonable 4%-5% withdrawal rate from investments before the crisis is likely now taking a whopping 8%-10% withdrawal endangering their principal. One risk that person can not afford is to spend down principal to help bail out an adult child. A forty-five year-old has multiple options to get out of a bad financial situation. A 75-year old does not. Once the money is spent, it’s gone. Just like helping a child that is addicted to drugs, providing financial support into their adult years is enabling them to continue what are likely bad money habits. If your adult child comes to you for assistance, start with a conversation of what the impact is on your financial picture.

The best gift we can all give to society is a responsible, disciplined new member when our children grow up. And it starts with us. We do everything we can to help our children, but we must learn that there comes a time when they need to learn fiscal and monetary responsibility on their own. And the sooner that happens, the less likely that your own financial position is at risk.