5 questions to ask before helping your adult child financially
Giving your children money when they are in their 20s and 30s can be helpful to them and fulfilling for you, but there’s a delicate balance. Warren Buffett recommends giving them “enough money so that they would feel they could do anything, but not so much that they could do nothing.”
How do you find that balance without upending your own finances? Start by answering these five questions:
- Can you speak freely about money?
Money is not an easy topic to discuss with grown children, but it’s important to tell them what you can and can’t provide. Laying your financial cards on the table is better than waiting for a crisis to arise and then having to make a snap (and perhaps regrettable) decision. Financial lessons are best if begun when children are in elementary school and continued while they’re living under your roof. If you feel your instruction was lacking, resist the urge to compensate just by giving them money now. It’s never too late to learn — or to teach. Help your children assess their financial acumen, and fill in any gaps.Then, identify areas where you would feel comfortable offering monetary help, such as with their cell phone plan, living expenses, tuition, a car and car insurance, and travel expenses to come home to see the family.
- Do they have a plan?
Seeing your children progress toward a stable adult life is the goal, and sometimes the financial help you offer in their 20s can be the crucial bridge they need. If you suspect they have no plan, asking this question is a good way to get them thinking about their strategies.
- Is your emergency account adequately funded?
Most experts suggest accumulating several months’ salary in a savings account for emergency spending. They also warn against taking a loan from a retirement account to help address short-term income needs — yours or your children’s. Taxes and penalties could take a big bite out of those assets, and you may end up with less money than you need in retirement.
- Will giving this money jeopardize or delay your retirement savings goals?
The best gift you can give your adult children is your own financial independence. However, your paternal instincts may compel you to delay your own gratification and retirement savings so you can help fund a child’s education. If helping with tuition means shortchanging your retirement savings, you could end up needing to rely on your children financially 20 or 30 years down the road.Remember this simple fact: Students can take out a loan for college, but parents can’t take out a loan for retirement.
- Should I cosign a loan or credit card?
Just say no to this seemingly no-cost way to help a child. A cosigned loan or card appears as outstanding debt on your credit report. Your credit score would take a hit if there were late payments, which could make it costlier for you to borrow money, say for a car. And if your child were to default on the loan, the lender would come after you and your assets.
Independence day will come (eventually)
If you’re worried about how the financial drain of parenting is lasting longer than you expected, rest assured. Most emerging adults are striving steadily to reach financial independence, and by age 30, most have achieved at least a stable income often in combination with a spouse or partner’s earnings.
Like you, they’re looking forward to the day when the Bank of Mom and Dad can close its doors for good. Until then, any help you’re able to provide without harming your own situation will position them to flourish in their 20s and beyond.