Are you among the almost 80% of parents who provide some financial support to adult children? The amount is a mind-blowing $500 BILLION a year, which is twice what parents put away for retirement.
In other words, you may be placing your kids’ interest ahead of your own. And that makes it one the biggest threats to your retirement.
Plus it could rob them of the experience of learning what it means to struggle and become financially independent.
So what’s behind this trend of boomer and Gen X parents supporting their adult kids?
Millennials Failing to Launch
Many millennials (those born 1981-1996) can’t get their careers and lives off the ground. They’re overwhelmed with lingering student loans, struggling with the high cost of rent and health care relative to income, and having difficulty finding decent-paying jobs in their chosen field.
PNC’s Millennials & Investing survey discovered that only 81% of millennials have full-time jobs. And the amount of expenses parents are paying for adult children isn’t exactly pocket change …
An average of $7,000 a year.
Where Is That Money Going?
You might think that all this parental support goes towards student loan debt since the media has named it a national crisis.
- 60% of parents buy all or some of their kids’ groceries
- 54% pay for all or part of cell phone service
- 47% foot the bill on car expenses
- 44% pay for adult kids’ vacation
- 36% cover rent or mortgage
- 27% pay student loans
Not Doing Your Kids or Yourself Any Favors
Sure, you want to help your kids get a head start on life. And it may have begun with a small amount, such as part of a monthly cell bill or rent payment, while in school. But post-college it might have morphed into a mortgage down payment in a trendy neighborhood or eating sushi three times a week.
If that sums it up, you’re creating an economic lifestyle that your children might not be able to maintain.
So you need to consider setting boundaries and providing guidance on how to manage money. Otherwise, how will they ever achieve independence and self-sufficiency?
The $7,000 cited above is money that isn’t going into your retirement account, such as a 401(k). Assuming a 7% annual average before-tax return $7,000 invested each year could grow to almost $97,000 in 10 years.
And who couldn’t use another 97 grand by the time they retire?
Even if you are well-heeled, you may be doing more harm than good to their financial and physical well-being.
5 Steps To Cutting The Parental-unit Welfare Cord
When it comes to money and emotions it’s tough to make decisions that are in our best interest. So here are five steps that can make the job much easier…
1. Make a List.
Go through your checkbook or money management program for the past year or so and make a list of what you’ve been paying for.
Be sure to include hidden expenses such as health insurance, car insurance, job-hunting, and car repairs.
You may be shocked.
2. When Is Enough Enough?
Think about what you rationally want to continue to pay and for how long.
3. Print It and Review It With Your Child.
He/She might not realize how much you’re actually spending to keep him/her afloat. Show them the numbers so they can see how the money you’re shelling out for their expenses will impact your retirement.
This step may help remove some the guilt when you move to step four.
4. Come to an Agreement.
Find a common ground about who will pay which expenses over the next three months. You might want to use a highlighter to mark those that the two of you agreed they will start paying.
5. Review the Agreement in Three Months.
You might have to make adjustments if they gets a job and can start paying more of their expenses, or goes back to school.
There’s a reason flight attendants tell you, “Put your oxygen mask on first before helping others.”
The same goes for helping your kids …
And it’s not just about the money.
One of a parent’s jobs is to prepare children to become self-sufficient … giving them their wings.
How quickly you give them the tools to do so is up to you. They’ll figure it out … they’ll buy something cheaper or do without.
Struggle and failure is powerful teacher when it comes to becoming financially independent. By experiencing the tougher spots of life, kids can become better able of thriving in the real world on their own.
There is a fine line between supporting and enabling your adult child. Don’t rob them of the opportunity to feel good about themselves.
On top of that, your retirement dream will be that much closer to becoming a reality.
To a richer life,
— Nilus Mattive
Editor, The Rich Life Roadmap