Help Yourself First Before Helping Kids Financially
It is natural for a parent to want to help their children financially, but helping kids financially isn’t always the best decision.
You may end up hurting them more than helping them – especially if you dip into your retirement savings.
While it is understandable to want to help, the amount of financial help adult children receive from their parents is alarming.
Consider these statistics.
- 47% of parents with a child older than 18 provide them with at least some financial support. These parents are shelling out $1,384 a month, on average.¹
- 61% of adult children still living at home don’t contribute to household expenses at all.²
- 58% of parents said they have sacrificed their own financial security for the sake of their adult children, a jump from 37% of parents a year earlier.³
- More than half (57%) of those in the 18-to-24 age group said they were still living with a parent, as did 21% of those ages 25 to 29 and 11% of those between the ages of 30 and 34.⁴
- Among parents who said they helped their adult children financially in the past year, 36% said it hurt their finances “at least some,” especially among parents with lower incomes.⁵
- More than 3 in 5 (61%) parents/guardians of children age 18 or older are currently sacrificing, or have sacrificed, financially to assist their adult children.⁶
- Parents of adult children also say they are sacrificing, or have sacrificed, their retirement savings (37%).⁷
Given the state of the world, it’s easy to understand why parents feel as if they need to help their children financially.
The rising cost of living and inflation have put many adults in dire financial situations.
However, helping kids financially may not be the right answer.
Read on to see why.
The Problem with Putting Your Kids First
Many parents prioritize their children’s financial needs over their own.
For example, some parents pay for college instead of saving for retirement.
Some dip into their 401(k)s to help their adult children with a down payment for a house.
Which may turn into a problem down the road.
Saving for your future retirement should be a priority as the cost of healthcare alone is making retirement years difficult for many.
If parents don’t prioritize their financial future because they are helping their children, it may backfire.
If you don’t have the money to cover costs such as medical care or assisted living during retirement, your kids will bear the burden of your care.
A study by Care.com found, “Nearly one-third of adult children provide financial assistance to their parents or aging loved ones. […] Parents also might have health issues that force them to get care from their kids, which can place a financial burden on them. Twenty-eight percent of family caregivers spend $5,000 to $19,999 per year on caregiving expenses, and 14 percent spend $20,000 or more per year.”⁸
Many children in these situations end up having to care for both their aging parents and their own children at the same time.
You don’t want to put your children in this challenging situation.
That’s not all.
When children become dependent on you financially, they fail to become independent.
The empty-nest years disappear as you have grown children still living at home.
What to Do Instead
Parents don’t want their kids to suffer, but, if you help them today, you may accidentally make them suffer tomorrow.
Here is what to do instead.
#1 Pay Yourself First
Whenever you take a flight, the flight attendant provides the following safety instructions:
“Should the cabin lose pressure, oxygen masks will drop from the overhead area. Please place the mask over your own mouth and nose before assisting others.”
Parents should follow this same advice when it comes to helping kids financially.
Before you take care of your adult kid’s finances, you must take care of your own.
You cannot help your child if you don’t take care of yourself first.
Start by always paying yourself first.
Make sure your retirement savings are automatically deducted from your paycheck so you can pay yourself before you pay anyone else.
#2 Work the Numbers
If you feel you must help your kids financially, work the numbers first.
Even if you feel the need to help, it doesn’t mean you actually have the ability to do so.
The worst thing you can do is go into debt to help your kids.
Take a look at where you stand financially to see if you have any room to help your kids out a little.
#3 Budget Accordingly
If you have room to help your kids financially, put it in the budget.
Don’t just give them a hundred dollars here or there.
Factor in how you support your children financially in your budget – after you have budgeted for retirement.
For example, if you plan to cover the cost of cell phones, add this to your budget.
#4 Have the Conversation
While talking to kids about money may feel awkward, it is important and necessary.
Your kids must clearly understand what you can and cannot give them.
This starts when they are young.
Talk to them about what you can pay toward college. Talk to kids about what they can expect from you in the future.
Don’t set them up for failure by allowing them to believe you will always be their bank.
Explain to kids that you need to plan for your future so that they don’t end up carrying your financial burden.
#5 Set Conditions
In order to protect your financial future while helping kids financially, set conditions.
Know what you can afford and how much you are willing to help.
For instance, instead of giving money to your child whenever he asks, know what you will cover and what you will not.
If you plan to give your child a lump sum for a major purchase, make it clear that this is a one-time deal.
If you plan to cover their utility bill, have a time limit in mind. For example, tell your adult child you will cover the utilities for six months to give her time to build up an emergency fund.
#6 Teach Financial Literacy Early
One of the best ways of helping kids financially is to teach them financial literacy early.
Teach kids how to be responsible with money. Show them how to pay bills on time, how to save money, and how to invest.
Give them opportunities to earn money and pay for their own things while they are young and living under your roof.
#7 Work with a Financial Planner
If you need advice on helping kids financially, speak with a financial advisor.
A financial advisor can provide suggestions for financially helping your kids and securing your financial future.
They can provide tips on managing your savings while helping your kids when they are struggling.
And, possibly, help your kids out as well.
A financial advisor may also be able to help with estate planning.
Better Prepare for a Life of Abundance in Retirement.
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SOURCES
- https://www.cnbc.com/2024/03/11/nearly-half-of-parents-financially-support-adult-children-study-shows.html
- https://www.cnbc.com/2024/03/11/nearly-half-of-parents-financially-support-adult-children-study-shows.html
- https://www.cnbc.com/2024/03/11/nearly-half-of-parents-financially-support-adult-children-study-shows.html
- https://www.cnn.com/2024/01/25/success/parenting-adult-children-living-home/index.html
- https://www.cnn.com/2024/01/25/success/parenting-adult-children-living-home/index.html
- https://www.bankrate.com/banking/parents-sacrifice-for-adult-children-survey/
- https://www.bankrate.com/banking/parents-sacrifice-for-adult-children-survey/#sacrificing-emergency-savings
- https://www.upwave.com/presspost/63-of-kids-plan-to-financially-support-parents-retirement-gobankingrates/
