Before You Help Your Grown Children
One of the toughest challenges I’ve seen many face over the years is the anxiety of guiding their adult children toward full financial independence. This is a very delicate subject, and I have spent a lot of time coaching others on it.
If you’ve had to deal with this, you already know that you have to walk a fine line between your desire to help them avoid the struggles you went through and your desire to help them learn financial self-sufficiency.
It’s a precarious situation, and as the father of a soon-to-be college graduate (son) entering the workforce and a 25-year-old (daughter) three years into her career after graduating, I can sympathize.
Evaluating the extent to which you’ll help them can be complicated. Will it be monthly assistance, paying off school loans, car loans, and credit card debt, the down payment for their first home, or even bailing them out of challenging financial times?
The decision will undoubtedly have two important outcomes:
- It will affect your long-term relationship with them, and
- It may very well shape the way they handle their finances for the rest of their lives.
Creating your retirement blueprint and knowing your numbers from it are the first steps to clarify the degree to which you are in a financial position to help your children.
However, that’s not to say you should help them. Everyone’s situation and background are unique. No one stock answer will suffice.
If you choose to help, here are some thoughts before you do so.
Before You “Help”
Because this is about your children, and potentially your grandchildren, try to de-emotionalize yourself from the situation and think as rationally as you can.
This can be difficult. It’s hard to resist going to great lengths to make things easier for them at every turn.
But remember that our good long-term decisions are based on rational thought and not on spur-of-the-moment emotions. So, as difficult as it may seem in the moment, make these decisions after careful thought. This is no different than any other significant financial decision.
Questions To Ask Yourself
Ask yourself a few very important questions:
- What is my goal in giving this money to them? What is the most likely outcome once I do?
- Do they really need the help, or are there areas in their lives where they could prioritize a little better and free up the necessary money? This is extremely difficult in today’s “I want it right now” world. Things that were luxuries years ago, or that didn’t even exist, are now “absolute necessities.” (Think iPhones and their expensive service plans.)
- Does this help them become more independent and self-sufficient? Or does it increase the likelihood that they will return for more later?
- How will this affect my relationship with my other children?
The most important factors are clear communication and expectation. It’s never easy to engage your children in financial conversations. However, the more explicit you are from the beginning, the more likely you are to get the outcome you’re looking for.
You want them to understand your reasons for assisting them, your limitations in doing so, and any parameters you may have for giving them money, i.e. expectations for the use of the money, limits on how they use it, reporting results back to you, terms of repayment if so desired, etc.
If discussing it is difficult, put it in the form of a letter. They will hopefully appreciate your honesty and the fact that you took the time to give it so much thought.
In situations in which they come to you for help, I recommend they provide full disclosure. By that, I mean laying out for you where their income comes from and precisely where it is spent.
The chances are high that they’ve never done this before. Writing it all down on paper is amazingly curative.
Documentation also forces them to face the reality of the results of their choices, which they need to learn to do at some point anyway.
For example, just because their buddy drives a new BMW doesn’t mean they’re entitled to drive one and take on a $680 per month car payment when they only make $500 per week. Perhaps an extreme example, but you get the point.
In many cases, what used to be a luxury is now interpreted as a necessity. Putting it down in black and white usually brings the point home very clearly.
Bottom Line
The bottom line is that you have to take the time to think about your goals in giving, along with what you believe the outcome will be from doing so.
Are the likely outcomes in line with your goals? If not, one of them has to be adjusted or you’re in for a potentially tumultuous long-term future with your family. And that’s no fun.
Jack Phelps
Managing Partner / Financial Advisor