If a car came screeching down the street, would you push your child out of harm’s way? It’s hard to imagine a parent responding with anything but an absolute “Yes!”
However, when your adult children need help making ends meet, think of the airplane rule instead. Put on your own oxygen mask before you assist your child. In the long run, you may actually help them more with a firm “No!”
CIBC reports that 76% of parents offer at least some financial assistance to their adult children. These parents often contribute twice as much to their children as they do to their own retirement funds.
A Merrill Lynch study found that 70% of these parents would like to increase their retirement cushion by cutting back on these gifts. If you find yourself nodding in agreement, you might be wondering, “How do I draw the line?” You want nothing but the best for your children – but you’ll need your own retirement nest egg, too.
Do you have to choose between saving for retirement and supporting your grown kids? Yes, and no.
Here are five ways you can achieve both of these goals.
- Give your adult children financial skills instead of financial support. Consider giving them a consultation with a planner as a birthday, holiday, or graduation gift. They’ll often be more responsive to advise from an outside expert who’s not a parent.
- Share your own money stories. Explain how you learned from your mistakes. Show them the numbers: how will your retirement be affected by regular withdrawals to help them out with living expenses? Will you be the one asking for help just when their own children reach college age?
- Set up gifts as surprises rather than regular income streams. Teach your children not to depend on an annual sum – unless you anticipate being able to continue indefinitely. For example, a family with several million dollars might be able to reduce its tax burden through planned giving throughout the parents’ lifetime. This opportunity is a win-win for both parents and children but isn’t common.
- Fund specific activities that ultimately increase your child’s financial independence. You’d be teaching them to fish instead of eating the fish you serve them. For instance, you could offer to support their education or a well-thought-out business plan. But avoid giving children money to support a lifestyle that’s beyond their means. If they need help with the down payment for a new home, they’re not ready to move.
- Set up contributions as loans with enforceable terms rather than outright gifts. This step not only protects your retirement but also shows that you respect your children as responsible adults. They begin to see themselves as self-sufficient and capable, not needy and weak.
Ultimately, your children will survive and thrive as adults when you encourage them to be independent. You’ve survived disasters, and so will they. When you insist on giving only what you can afford comfortably, you’re helping them become strong, confident adults who can save up for their dreams and handle any unexpected bumps in the road. And, as a bonus, you’ll get to enjoy each other’s company as family members with no hidden resentments holding you back.
And now, it’s your turn. What’s your family’s policy on funding your grown children? Do you send regular monthly payments? Restrict gifts to birthdays only? Or do you strive for something in between? Reach out to your local Ottawa Financial Planner at MDL Financial Group. We’d love to hear from you!
