When I work with clients who give money to their adult children I am always curious why. Since preparing a comprehensive budget is part of the counseling process, the topic often comes up. The adult child may still be living at home, or recently returned to the parentsâ€™ household. Or, parents may be giving money to an adult child that lives on his/her own.
Often what I see is parents either borrowing money to supplement their childâ€™s income, or diverting money earmarked for their own emergencies or retirement to help out. Neither scenario is good for the parents because they canâ€™t really afford to be generous without putting their own financial security at risk. Is this what your adult children would really want if they only knew?
If you give money to your adult children, you have lots of company:
The National Endowment for Financial Education completed a study a couple years ago that showed more than half the parents surveyed (59%) financially helped out their adult children who were not in college. If not in school, then presumably these young adults should be working, right?
Money was given most often for living costs, transportation, and even spending money. When asked why parents help, most replied they were â€œlegitimately concernedâ€ about their childâ€™s financial well-being, while others stated they did not want their children to struggle financially like they once did.
Good reasons to be sure. But, my concern is how does the adult child learn to be self-sufficient, or learn to live within a budget if the parents are always willing to hand over money? Especially if the parents become financially unstable or indebted just to support adult children.
When your adult child comes to you asking for money, where do you begin? My advice is donâ€™t start by pulling out your checkbook. Instead, look at the situation more closely.
First, think about whether you can really afford to help your child. Are you living on a fixed income that barely covers your own bills? Have you been saving for emergencies of your own? Do you have a retirement plan that you should be funding? If you answered â€œyesâ€ to any of these questions, look at helping your child in other ways.
Second,Â examine the reason why your child needs money. Is this really a short-term crisis, or more of a chronic condition? If your child canâ€™t manage money, overspends on â€œwantsâ€, or has other issues that lead to money problems (possibly mental health issues or substance abuse), the situation warrants further investigation and different solutions. If you simply hand over the money you can count on more requests for cash that will further drain your finances.
Some Helpful Guidelines
Establish with your child if this is a gift or a loan.
â€¢ Consider if you can afford the gift; otherwise make it a loan.
â€¢ Set a repayment schedule going forward. Talk with your child to determine an affordable and realistic payment and loan term.
â€¢ Decide on consequences for missed or late payments.
â€¢ Have your child commit to changes he/she will make to repay you on time.
Ask if your child is making any sacrifices.
â€¢ How did this financial crisis come about?
â€¢ What is your child giving up to meet this financial crisis?
â€¢ How will your child prepare to avert the next financial crisis?
Consider other ways to help besides writing that check.
â€¢ Maybe your child can move in with you temporarily until finances improve.
â€¢Â Perhaps you can temporarily provide childcare to reduce living costs.
â€¢ Maybe you could provide a reference for job applications.
Explore outside resources to help your child.
You could compile a list; then have your child make the phone calls. Referring your child to their local NFCC-Certified Counseling Agency like LSS Financial Counseling is a great place to start. By talking with a Certified Financial Counselor, your child will have an objectiveÂ third person looking over his/her finances. Counselors will also make recommendations to get your child back on track financially. And, remember this help is free and confidential. So, what do either of you have to lose?
Donâ€™t be afraid to say â€œnoâ€
Finally, donâ€™t hesitate to tell your child no when you simply canâ€™t afford to hand over money. As parents, your financial stability is just as important as your childâ€™s. And, you have less time to make up for any financial hits to your savings or retirement accounts when you put your childâ€™s needs before your own. I am not suggesting that you should never help your children with money. But perhaps you can make it a teachable moment to get your child on the road toward self-sufficiency, rather than relying on you as a cash machine whenever a money problem comes along.
Barb Miller is a Certified Financial Counselor and Bankruptcy Specialist with LSS Financial Counseling. She specializes in blogging about bankruptcy, student loans, and financial education. LSS Financial Counseling is a member of the National Foundation for Credit Counseling. To schedule an appointment with a certified financial counselor call 877.577.2227 or visitÂ their website at ConquerYourDebt.org.
Views expressed are the personal views of the author, and do not represent the views of the National Foundation for Credit Counseling, its employees, its members, or its clients.