Every parent dreams of the day their child finishes their education, enters the working world and becomes financially independent. It’s fulfilling to see your child become a productive, happy, self-sufficient adult. It also may feel good to no longer have the expenses that come with a financially dependent child.
Unless they don’t enter adulthood quite like you’d planned. Unfortunately, more and more baby boomers are finding that their children are struggling to make the adjustment to financial self-sufficiency. Whether it’s caused by student loans, a soft job market or other financial challenges, many adult children rely on their parents for some form of support. In fact, a recent study found that one-third of all American households provide some form of financial support to grown children.
If one of your grown children has recently asked for support, you may know this dilemma well. On one hand, you don’t want to see your child struggle. On the other hand, you need to use this time to maximize your savings and prepare for retirement. If you’re supporting your child, you may not be able to save as much as you would like.
With the right approach, though, you can help your child and protect your retirement all at the same time. Below are a few questions to ask yourself and possibly your child. Think about your answers to these questions before making a commitment to offer assistance. Also consider how to transition your child to financial independence.
What are the terms and limits of your support?
It may be perfectly reasonable for you to assist your child, but that support shouldn’t be open-ended. Establish some terms and limitations for the support, to protect yourself and to let your child know the boundaries.
For example, you may decide that a certain amount is a loan and not a gift, and you may set firm repayment terms for that loan. You may put a cap in place on how much assistance you will provide per month. You might tie the assistance to their behavior, such as requiring them to use a budget or having them do yard work or other home maintenance.
Decide the boundaries and limits of your support, and put those limitations in writing. Then share those terms with your child so he or she knows the limits.
What are some non-financial ways you can help?
Your child may be asking for money, but is that the only form of support you can provide? It may be that your child is asking for cash because that seems like the fastest and easiest way to solve their problems. However, there are probably other ways you can assist.
For example, you may be able to help them connect with business contacts who could aid in their job search. You could help them develop and implement a budget. You might be able to sit down with them and call their credit card companies to negotiate lower interest rates and payments. You have skills, experience and knowledge to offer. You can help them with those things instead of giving them cash.
Does your child understand your financial challenges?
Your child may assume that you have plenty of money to provide assistance. They may not understand the challenges you face or how much you still need to save for retirement. Sit down with them and show them your retirement plans. Better yet, take them to a meeting with your financial professional. If they understand your situation, they may think twice before asking for support.
Do you need assistance with helping your child and protecting your retirement? Contact us at Gregory Financial. We can help you analyze your needs and develop a strategy. Let’s connect today.
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16112 - 2016/9/20