Research has revealed that nearly 70% of parents older than 50 have provided their adult kids with some form of financial assistance over the past few years, with amounts for this assistance totaling an average of just over $7,000 per year. If invested or saved in a tax-deferred account that provides an annual return of just 6%, this could amount to as much as $100,000 extra that these parents could have saved for their retirement years.
Here are a few practical ways in which parents can offer help and support to their kids:
Ensure that they Trim their Budgets
If there’s a genuine reason for your adult kids to not be fully supporting themselves financially yet, lending a hand to cover aspects such as utility bills or rent is quite acceptable – for example, if your adult kids are doing everything they can, but still aren’t able to make ends meet due to a low paying job.
Funding a lavish lifestyle, paying rent on a costly apartment or condo or enabling your adult kids to pay for fancy restaurant meals will not help them learn to support themselves over time.
Establish a Practical System
More than 65% of parents have provided financial assistance to their adult kids at some point to help cover the cost of a utility bill or an unexpected emergency expense. However, an alternative approach is also recommended.
Start by determining ahead of time how much your adult child will require to supplement his or her existing income and then set up automatic transfers to them totaling the amount needed. After a few months, it’s recommended that you review this arrangement and consider reducing the amount systematically until you reach a mutually agreed upon timeline for stopping your financial support.
Establishing an arrangement like this will mimic the situation of receiving a steady paycheck. However, there may still be instances where genuine emergencies will arise, such as dealing with unexpected vehicle repairs. If cases like this occur, don’t feel bad about stepping in and providing your adult child with the amount of financial assistance you can comfortably afford.
Become your Child’s Financial Advisor instead of their Provider
When it’s time to stop providing your adult child with financial help, it doesn’t mean that you should stop giving them appropriate financial advice. Information you should provide them with can involve teaching them how to budget effectively, how to choose the right healthcare plan to suit their finances and how to opt into the best 401(k) plan to prepare for retirement.
Another option you can use to provide adult kids with financial guidance and advice is to introduce them to the numerous budgeting apps that are available these days, such as Mint and Digit. It’s also recommended that they be informed about the various financial blogs that can be accessed, as this will provide them with valuable information regarding financial responsibility and security.
If you would like to learn more about securing your retirement nest egg and preventing it from being eroded by your adult kids over time, contact our financial advisors today.Continue reading