Why and How to Cut Financial Support of an Adult Child
(originally published 6/28/2017 on my personal LinkedIn page)
“There are only two lasting bequests we can hope to give our children. One of these is roots, the other, wings.”
In a study published earlier this year, the think tank Age Wave revealed what could amount to a vicious multi-generational economic cycle. They found that, when it comes to family, their subjects listed two specific financial actions as their top priorities. The top response at 84%, was to educate their family on ways to be more financially independent. The second intended action was to cut back on financial support of children (70%). While these points alone do not a “vicious cycle” make, they are the first clues that lead us down an unsettling path.
While dependability and commitment to one’s family are admirable traits, several recent studies show the negative consequences of such good intentions. A 2012 study by Ameriprise revealed that 93% of baby boomers have provided financial support to adult children. A similar 2016 survey by Money Magazine reported that this type of support added up to over $5,000 annually. The most troubling direct result of this support is on the parents, 60% of whom (according to Merrill Lynch research) would be willing to work longer in order to support their adult children. Over one third of the respondents to the Ameriprise study even admitted that helping their adult children has slowed down their own retirement savings.
This is where this pattern of evidence comes full circle. Despite the fact that the majority of subjects listed their greatest retirement-related fear as “being a burden on family members as we age,” they are putting themselves in a position to be exactly that. By sacrificing their own long-term financial well-being, parents may be putting the next generation in an even worse potential position. That generation may end up simultaneously supporting their aging parents as well as their own children. In this way, three generations can end up in a downward wealth spiral.
Thankfully the two top priorities from the Age Wave study, can provide a step in the right direction. At least there appears to be an awareness of the need to educate our families and dial back on the financial sacrifices made in their names.
Here are some basic steps to cutting back financial support to adult children
Create a list of things you are paying for. The Merrill Lynch Study discovered that most parents could not identify what they were paying for. The eventual lists ended up including rent, car insurance, cell phone, utility bills and health insurance.
Set an end date and work backwards. Choose a date a few months in a future when you will have financially “cut the cord.” Schedule what months you will shift responsibility for specific expenses. Try to give enough time that you avoid the urge to give cash handouts during the adjustment period.
Communicate your plan. Have a conversation about the impact of the current expenditures on you, and perhaps your spouse. If there are siblings in the next generation, you might wish to address whether or not the current arrangement is fair to them. Discuss examples of circumstances, like a medical emergency, where you would still be available as a “lifeline”.
Continue to support and coach. To cut back on financial support does not equate to cutting back on emotional or intellectual support. You should still act as their committed coach and guide as you give your next generation the space to grow into their best, independent and responsible selves.
“Loving a child doesn’t mean giving in to all his whims; to love him is to bring out the best in him, to teach him to love what is difficult.”