According to a recent study, nearly 60% of parents are financially supporting their adult children. Jean Chatzky on how to give responsibly
Are you, or have you ever, supported your adult children financially? If you’re shaking your head yes, you’re not alone – not by a long shot, in fact. A recent study from the National Endowment for Financial Education surveyed 683 adults, aged 18 to 39, and 391 parents of adults in that age range. Forty-two percent of the adults said they are currently receiving or have received financial help from their parents, and 59% of parents said they’ve given.
The research is quick to point out that these are not students, though many may be recent graduates, says Ted Beck, the president of the NEFE. “Statistically, about 75% of the respondents are in the 18 – 34 age group, so it definitely skews younger. But by going older, to age 39, we also captured people who had to move home or receive assistance for reasons of divorce, the loss of a spouse or job.”
The reality is we’re still in a tough economy. About 65% of the adult children surveyed said they feel the financial pressures faced by their generation are tougher than those faced by previous generations. You may not agree, but that doesn’t eliminate the problem: What do you do if your kids need your help or a roof over their heads?
* Assess the situation. Listen, there are financial emergencies, and then there are … struggles that are almost a rite of passage. If your kid can’t afford food, obviously some assistance is necessary. If he can’t afford his current lifestyle, but some adjustments can be made that will allow him to remain independent, that’s an entirely different story. Of those parents surveyed by NEFE, 37% said that they are providing financial assistance to their children because they don’t want them to struggle the way they once did. But some measure of struggle is actually good. You have to toe the line between helping your kids out of a bad situation and making a comfortable lifestyle easy for them.
* Set some ground rules. If you’ve decided help is necessary, you need to sit down and talk through what, exactly, that means. Are you giving them money every month? Will they be moving back into their old room? Both? And, most importantly, do you expect to be paid back? One piece of great news that came out of NEFE’s research is that 75% of the adult children who currently live or have lived with their parents contributed something financially. Many helped with food costs, some utility bills, and about 30% put in toward the rent or mortgage. I strongly suggest you ask them to have a stake in the household.
* Make it formal. A written agreement is a must. Make sure the document includes an end date – when they’ll move out or when your financial assistance will stop – as well as detailed information about what you are contributing, what they are contributing in return, and whether and how you’ll be repaid for your assistance. The contract should also require them to take steps toward independence, by saving some money each month.
* Don’t compromise your retirement. One of the most jarring NEFE findings, at least to me, is that 26% of parents have taken on debt to provide assistance to their adult children, and 28% have had to use money from savings, investments or their retirement. This is not an option. Not only will it set you back financially, but it could end up hurting your kids more than helping them, because down the line, when you’re not prepared for retirement, you may need to rely on them for financial assistance. If you can’t lend a hand without borrowing from your future or taking on debt, opt to assist them in other ways: Use your connections to help them land a job, offer to watch your grandchildren so parents can work weekends and bring in more money.