The modern economy has proven to be a difficult space. The job market is extremely competitive. Student loan debt is crippling. With all this weighing on the shoulders of young workers, they are turning to the parents for support.
A survey reported that 59% of parents provide support to children no longer in school. Two-thirds of those parents report spending at least $1,000 per year on a grown child, and 16% reported spending $5,000-10,000. In addition to the financial sacrifice, 7% reported having to delay retirement in order to financially help a child.
Aaron* was a parent of a 35* year old who wanted to help his child by cosigning on a lease for a new car. Earlier financial troubles had damaged his son’s credit, so Aaron did what he could to help. His son paid his first few months dutifully, before stopping payments abruptly. The bills transferred to Aaron, ultimately leaving him with $11,000 of new debt, and forcing him to delay retirement.
The Blunt Truth:
We all love and care about our kids. We want to see them succeed, so when life brings them into a rut, we often rush to help them without thinking that we could end up in the rut as well.
Retirement is a 20-30 year proposition. Your assets need to last you that entire 20-30 years. Preserving assets is already a difficult task. Stock market volatility, taxes, living expenses, RMDs: they all chip away at the value of our portfolios. Our portfolios are delicate, and even with sound retirement planning, the truth is many of us are not in a position where we can afford to give away some of our principal and still have enough leftover to last for ourselves.
It’s challenging. As parents, we are loving. However, although we want to support our kids, we need to remember our own best interests. Financially supporting an adult child may derail your retirement. It can deplete your principal, causing your assets to dissipate before your retirement is over. The financial strain may even go so far as to force you out of retirement and back into work.
This is not to say we should never help our children. Parents are benevolent. It is natural to want to reach out and extend a hand to a child in need. The message is not to neglect your children, the message is to proceed with caution. If a child needs financial support, we need to consider our own best interests, and be sure we ourselves are financially stable enough to offer help without hurting our financial position. If you decide to help, the best way is to establish boundaries with your aid. LOAN the money to your kids, making sure that you will at least recoup the principal in a defined timeframe, if not interest as well.
Supporting kids and supporting ourselves is a delicate balancing act. We want to reach out and help, and with 60% of parents doing this, we are not alone in this feeling. However, we need to be confident in our own financial stability. If our assets cannot support ourselves, then we are of no help to our children either. We need to be realistic about the kind of help we can afford to our children and what we need to keep for ourselves.
*Names and ages changed to protect identity.
