Should I financially support my adult children?

With the holidays coming up, many of us will be gathering with our adult children. That may present questions as parents learn about the financial needs (or predicaments) of their adult children. Because most parents love their children (who doesn’t?), providing financial support seems just like another loving act, especially when we see them struggling to pay for childcare, housing and the necessities of life. 

So, how does one decide about providing financial support? 

It’s not easy. 

When our kids were young, we would not blink an eye about providing our children with the things that they needed to succeed, even if it was a financial stretch. (We are not talking about “wants” here.) But that nurturing approach changes once they graduate from college. Now they should have some training that will enable them to get a job and earn a living. However, becoming financially independent today is different from when their “boomer” parents were young adults.¹

Financial demands have changed 

Many parents are realizing that with a changing job market, the high cost of housing, student loan debt and other obligations, providing financial support seems natural if not necessary. Plus, we parents do not want to see our children suffer, especially if we have the resources to help. Yet, we know that earning money through hard work is more meaningful than winning the lottery or receiving a big inheritance. 

Finding the right balance

In my work as a financial planner and parent I can tell you that it is difficult to arrive at the right balance between giving your adult kids money and watching them struggle financially. In addition, if you have more than one child, you know that each one has different attitudes towards money, saving and spending. This requires different approaches for each kid, while trying to be fair. I suggest trying to tailor your support to the circumstances—theirs and yours. If you have the ability to financial help them, consider investing in the big items that will ensure their long term financial security. 

3 key gifts: #1 Education

Number one is education and advancing skills in their area of interest. After all, their ability to work and earn an income has the potential to provide them with life-long financial resources. What better way to help them become financially independent? 

3 key gifts: #2 Housing

Second would be contributing to their housing. It is no surprise that housing is usually the largest personal expense for young adults. Historically, experts have recommended spending no more than one-third of one’s income on rent or a mortgage. But high rents, house prices and interest rates are forcing young people into alternatives: many have to live at home or delay buying a house for years. Providing your adult child with a substantial down payment or rent subsidy has become commonplace—that is, if you have the ability to financially support those choices. 

3 key gifts: #3 Funding an investment account 

Helping your adult children open a retirement account and funding it can jumpstart their long term financial security. Over the years I’ve had many first-time clients tell me, “This is my first IRA and my dad / mom helped me set it up.” For those clients it was an important financial milestone marking the beginning of a regular pattern of saving for the future. And over the years it can grow to give them more financial security, peace of mind and pride. 

Be deliberate and clear

With whatever financial support you decide, be clear. If you are going to give your adult child money or investments, you need to specify your expectations including what the money can and cannot be used for. Adult children that end up in conflict with their parents about gifts tend to be unclear about the purpose(s). While it is okay to attach some conditions to it, if you really in your heart of hearts have no intention of enforcing those requirements, leave them out. For adult children that have had a hard time managing their finances, a written agreement may be useful and provide a tool for gift discussions. 

The consequences of overly generous parents 

As more parents choose to support their adult children, they risk shortfalls in their retirement funds which could delay their retirements for years. Or worse, they might have to move in with their adult children’s because they have run out of money—usually not what either has planned. We recommend carefully planning your gifts to be sure that you are not negatively impacting your retirement or other financial goals. In addition, giving cash may not always be the best way to make gifts. Often it is better to transfer shares of appreciated stock, especially if the recipient is in a lower tax-bracket, e.g., a graduate student. 

Of course, you’ll have to decide what trade-offs are acceptable to you, both emotionally and financially. 

If you’d like to discuss the best ways to support your adult children, give me a call. I’m here to help. You can schedule a quick call with me by clicking HERE. 

Lyman H. Jackson

Lyman@PlanWithFPS.com

617-653-3303

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¹I have found that my memories of how things used to be when I was a young adult have become selective. I have conveniently forgotten my financial mistakes, like buying concert tickets before getting solid commitments from my friends. Just ask me about the Billy Joel tickets I bought after college and how I had to give them away. It was a hard lesson but it made me think twice about buying concert tickets.

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