Body text: I recently received a call from a client (we'll call her Shelly) who was concerned that she wasn't saving enough to be able to retire comfortably. Her personal expenses are modest and she earns a high salary, so I was puzzled by her failure to save more until she made a confession. She pays her adult son's rent, cell phone bill and other expenses -- and has been doing so for the past nine months.
Shelly was clearly torn as to whether she should continue paying her son's expenses. She wants to be a good parent and help her son, who said he couldn't afford to pay his bills. Yet, as I pointed out to her, she couldn't afford to jeopardize her retirement either.
Does this story sound familiar? Do you have adult children asking for financial help? If you do, you're not alone. A survey conducted last year by AARP found that a whopping 68 percent of its members are helping to support their adult children. The most common forms of financial support parents offer include paying off college loans, buying a car, allowing the child to move in and live rent-free, paying car insurance or co-signing for a loan or lease, according to a 2007 report by Ameriprise Financial. And despite the frequent check writing and bill paying, just 39 percent of baby boomer parents say they talk about money and finances on a regular basis, the survey says.
Parents are used to making financial sacrifices for their children. In 2007, USDA Research found that raising a child costs the typical middle-income family $204,060 -- and that's before college expenses are considered. Most parents consider that money well spent and look forward to the day when their adult child is independent.
But when those children grow up and don't become financially independent, the impact can be devastating on the parents' golden years. Often, parents spend money on the children that they had earmarked for their own retirement. Or, they take money out of their general household expenses, never realizing that that money would have otherwise been saved.
Although it is natural for parents to want to help their children, it's important that you not sacrifice your own retirement plans in the process. If you find yourself in this situation, you should first examine the cause of the financial hardship for your child. If your child is facing a onetime or temporary event, such as a job loss, illness or divorce, your help may make sense. Life can be cruel, and everyone needs a little help (emotional or financial) from time to time.
However, if the financial difficulties are due to mere lifestyle errors, such as running up credit card debt by living beyond one's means, poor money management or bad budgeting skills, a financial handout isn't likely to solve the problem. In such cases, professional counseling may be a better option. You wouldn't give a bottle of scotch to an alcoholic. Giving money to a spendthrift isn't helpful, either. Instead, you're merely enabling them. It can be hard to admit, but sometimes not helping is the best way to help. Children, even those in their 20s and 30s, must be allowed to figure things out on their own.
Shelly realized during our conversation that giving her son money was enabling his bad financial behavior and not teaching him anything. She decided it was time to have a talk with him about money management and financial responsibility. She was relieved to know that she was making the right decision, even though she knew the conversation with her son would be difficult.