If, when your children were teenagers, you started a habit of giving each child $200 on Christmas morning, then they may continue to expect to receive that gift every year, even when they’re in their 40s.
Or maybe one of your children doesn’t have the income to support the lifestyle he or she wants or was accustomed to while growing up in your home — and you’ve made a habit of helping pay for a big-city apartment or private school tuition for the grandchildren.
While every parent wants to help his or her children, continuing to give money to grown children on a regular basis can cripple your own financial situation as you near retirement. “I regularly see clients who have set up adequate retirement planning for themselves, but are now making unplanned, regular withdrawals to give money to their grown children, often putting their own retirement in jeopardy,” says Joe Heider, president of Cirrus Wealth Management Group in Cleveland.
If you’re facing questions about how to finance your own retirement and yet feel that your adult children expect you to regularly dole out money, it can be difficult to stop, even when you can’t really afford it anymore.
A Habit Worth Breaking?
Aging adults say giving money to grown children is one of the top financial habits they’d be willing to change in order to get their retirement on firmer footing, according to a recent survey from Merrill Lynch and Age Wave, which studied 50,000 respondents over four years.
Of those surveyed, 84% said they would like to educate their family on ways to be more financially independent, while 70% said they would consider cutting back on support to post-college children. Among those Americans who give their adult children post-college financial support, the average amount given is $6,800 annually, according to the study, an amount that could contribute substantially to the parents’ own retirement.
If you’re in the habit of handing over money to your adult children and the practice is affecting your own financial security, it may be time to make a change.
The Problem With Over-Generosity
There is nothing wrong with being generous to your children, even when your children are in their 40s or 50s — so long as you can afford it. But when that generosity starts to endanger your own finances, prevents your adult child from accepting responsibility for his or her own life, or creates tension among siblings, it can become a problem. “If you’re setting up a pattern of helping a child establish a lifestyle that they can’t support, you’re enabling that child to be fiscally irresponsible, which will probably create a crisis later,” Heider says.
Such situations create a codependent relationship between the adult children and the parents, says Jim Wiley, AIF, CEO and chief investment strategist at the Wiley Group in West Conshohocken, Pennsylvania. “The kids become dependent on the money, and the parents become dependent on the emotions they feel by helping their children,” he says. “They don’t want to disappoint the kids who are expecting cash at Christmas time, or whenever they expect it.”
Finally, in many families, there may be some siblings who are very fiscally responsible, but one adult child who simply can’t support the lifestyle he or she wants. Heider says he often sees aging parents who are willing to support that one child — even when it means draining the parents’ retirement accounts and causing resentment among the other siblings.
How to Stop the Bleeding
If giving cash to your adult children is causing similar problems, there’s nothing wrong with stopping. After all, your children are presumably capable of supporting themselves and shouldn’t need to depend on you for their ongoing survival. However, for many parents whose adult children have grown accustomed to receiving cash gifts, it’s not that easy.
“As a parent, you always want the best for your children, but you also have to put your foot down, and it can be difficult to do that, especially if you haven’t made a habit of doing so,” Heider says. “Children get used to asking for something and getting it. But when you tell them you have a fixed amount of resources and you can’t afford to supplement their lifestyle anymore, they have to accept that they have to live within their means.”
Wiley recommends asking your financial planner to redo your distributions from your retirement plan for the coming years so you can see firsthand how the gifts to your children are affecting your financial future. “Then simply tell your children, ‘Look, my financial advisor told me I can’t give you money anymore because I’m not going to have what I will need for retirement,'” he says.
If your adult child is depending on your money to finance his or her lifestyle, Wiley says to take the discussion a step further. “Tell your adult children that you and your spouse made a mistake by allowing them to depend on you financially,” he says. “Tell them that you want them to struggle like you did because it’s a chance for growth. It’s important for each person to navigate financial trade-offs to determine your highest meaning and purpose.”
Give Your Children Skills Instead
If the idea of simply stopping what has become a habit of giving money to your adult children seems too harsh or abrupt, consider helping them acquire some financial skills.
If your adult child has never learned to create and live on a budget, for example, find out if they’re aware of the apps available to help them do so, such as YNAB (You Need a Budget), Mint, and others.
Another option is to introduce your child to your financial planner; an introductory meeting with someone you trust could help set them on the path of understanding and handling their own financial matters more consistently. Plus, your child may be more receptive to receiving financial advice from someone who’s not their parent.
Finally, even if you decide that you need to stop funding an adult child, there are no rules that say you have to stop cold turkey. You may want to set a time frame during which the funding you provide will be reduced incrementally, while your adult child is learning new financial skills, training for a new career, or otherwise asserting their financial independence. A gradual reduction in funding may help give your child the incentive to make some real changes as needed.
How to Give Money Correctly
While habitual gifts of money can become damaging to an aging parent’s financial situation as well as an adult child’s future, occasional gifts can certainly be appropriate. Maybe an investment performed really well this year and you want to share the gains with your children: No problem, Wiley says.
“You might just say, ‘We had a great year and we want to give each of you this amount,'” Wiley says. “If you do give money to your adult kids, just don’t do it consistently. Never do it on a yearly basis, but a sporadic basis is great. Nobody is depending on it, but you are able to surprise them and help them occasionally.”
In addition to occasional cash gifts, Wiley recommends funding children’s or grandchildren’s educational accounts as a way of helping out. “This makes perfect sense because nobody is depending on it to fund their budget, but it’s an important way of helping your children or grandchildren financially,” he says.
Of course, if one of your children has an emergency, such as a medical issue or divorce, that leaves him or her in need of financial help, it’s okay to make an exception, Heider says. But aiding an adult child through an emergency is different from supporting a lifestyle for that child that he or she can’t maintain on their own.
Keep in mind that if you’ve raised your children to be responsible adults, they should be capable of supporting themselves. They may not yet have the lifestyle they want, but that’s life: You will not always be around to support them, and helping them learn to live within their means may be one of the most important things you can do to show your love for them.
READ MORE: How to Live With Your Boomerang Kids