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Are Your Kids Ruining Your Prospects for Retirement?

By Catherine Brock – Feb 22, 2020 at 1:15PM

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Help your adult kids achieve financial independence with these four steps.

In the 2006 film Failure to Launch, a set of frustrated parents meddle to get their adult son Tripp to move out of their home. Tripp's folks hire a self-appointed "adulting" expert -- but in real life, there are better ways to help your adult kids become financially self-sufficient.

In 2015 (when the most recent report from the U.S. Census Bureau was published), 24 million adults between the ages of 18 and 34 were living with their parents. And it's safe to say there are millions more who don't live with their parents, but do receive financial support from them.

It's a sensitive topic, to be sure. As a parent, you want to do right by your kids -- but simply opening your checkbook may not be the best move for them or for you. A better approach involves budgeting on both sides, along with open communication and a timeline for your kid to achieve financial independence. Here are four steps to get you started.

Parent talking to an adult child outside

Image source: Getty Images.

1. Budget for the help you provide

The money you give to the kids is an expense. While you may not want to think of it that way, the effect on your financial bottom line is the same as a shopping spree or weekend trip. Because those funds have to come from somewhere, kid support must function as a line item on your budget. And, like all other expenses, you should put a cap on it, monitor it, and take steps to reduce it over time.

Also, the funding that goes to your kids is a discretionary expense. That means you should make room for it in the budget by cutting back on entertainment and other non-essential things. Help for the kids should not come from your retirement savings, emergency fund savings, or even amounts earmarked for debt paydown. Doing this degrades your financial situation and could threaten your retirement, which is counterproductive. Think of it this way: You can only support your kids through tough times (and avoid becoming a financial burden to them later in life) by fiercely defending your own financial stability.

2. Teach them about budgeting

Your adult kids are never too old to learn about budgeting and saving. Approach this conversation without judgment and you may find that your young adult wants your guidance and advice. In a 2019 survey by AIG Retirement Services, 47% of college student respondents admitted to feeling unprepared for managing their own money.

Talk through the basics of budgeting as a segue to why your adult child can't make ends meet. Introduce the 50/30/20 budgeting system as a starting point. This involves limiting required living expenses to 50% of take-home pay. That leaves 30% for discretionary spending and 20% for savings and debt paydown. Find out which of these three categories is out of whack for your child.

From there, the two of you can make a plan to address the problem areas -- with the goal of pulling back your financial support at some point. If your kid's entry-level wage hardly covers the rent, for example, the two of you could explore cheaper living situations or make a plan to revisit the budget annually when your child is due for a raise. Or, if your child wants to argue that Netflix is a required expense, that's a cue for some gentle coaching on the difference between needs and wants.

This conversation provides a nice opportunity for you to share how you've budgeted the support you provide. You can explain that the money comes out of your 30% discretionary bucket because your savings contributions are off-limits. Share your view on the importance of saving to your retirement accounts early and often.

3. If you pay them, make it a regular allowance

Avoid writing checks as needed for your kid. Once you review your child's budget, you'll know what the income gap is. A regular, recurring allowance from you, along with reasonable spending cutbacks by your kid, can fill that gap. This approach forces Junior to follow the budget and be mindful of spending. If that doesn't happen and your kid runs out of money before the next paycheck, don't step in with your checkbook in hand. That only sends the message that the Bank of Mom and Dad is always open. It simply can't be. Your financial support is conditional on your child meeting you partway in the process.

4. Help them in non-financial ways

There are other ways, outside of check-writing, to help your child make ends meet. If there are grandkids in the picture, for example, you could offer child care once or twice a week. You could also coach your child on lean lifestyle skills, like cooking, meal-planning from the supermarket sale flyer, cutting coupons, thrift-shopping, and growing herbs and vegetables. Any skill you have that can help your child cut spending is worth sharing.

Help your kids -- temporarily

For the financial health of your whole family, it's important to put boundaries on the financial support you provide your adult kids. You can't both put your retirement at risk and enable a child's irresponsible financial behavior -- that puts both households at risk. Instead, stick to your own budget and teach your child to do the same. That benefits both of you, with no meddling or adulting expert required.

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