When meeting with clients to discuss their risk tolerances and explore potential “what-if” scenarios, you’ll likely uncover many concerns. Typical worries about the volatile market, when to claim Social Security benefits and the pandemic will almost certainly arise.
What rarely gets brought up, however, is how a couple’s children could jeopardize their financial future. This can be a touchy subject with many variables and emotional weight, making it a potentially uncomfortable discussion. But as a plausible scenario, it’s worth exploring.
When parents don’t set financial boundaries with their children, the resulting relational volatility may be a greater threat to retirement than other, external factors. Not sure how to bring up the topic or what signs to look for? Use these insights and tips.
Characteristics of Entitled Children
The pandemic has upended just about every facet of life, and it’s caused many parents and children alike to reach out to one another for assistance in a number of ways, including financial help.
But extraordinary circumstances aren’t the focus here; we’re primarily looking at what happens when grown children become financially over-reliant, hurting their parents’ retirement prospects in the process.
Some parents, having grown up in a strict or overbearing environment, allowed the pendulum to swing too far in the other direction when it came to raising their own children. With loving intentions and a sincere effort to provide the “perfect childhood,” some parents indulge their children, rarely enforcing boundaries or imposing consequences.
This upbringing can result in people who grew up with an attitude of gratitude, freely giving back to others. On the other hand, it could also cultivate and nurture a lack of coping skills to handle situations when, as adults, they’re told, “no.”
Feelings of entitlement among teens and adult children can vary widely. Telltale behaviors can range from temper tantrums to threatening parents who don’t give in to their demands. In more extreme cases, it can end in estrangement.
What Grown Children May Do to Affect Their Parents’ Finances
What are the behaviors to look for that may indicate your client is dealing with an entitled adult child who could be affecting their parents’ financial wellbeing?
Relying on Their Parents Deep Into Adulthood
Beyond helping to fund a child’s education by paying for college tuition and related expenses, or even paying for a wedding, many entitled children continue to seek financial assistance well into adulthood. It’s not unheard of for parents to pay for their adult children’s cars, insurance, cell phones, vacations, food and other expenses.
The practice was already prevalent, and the pandemic appears to have exacerbated it. According to a 2021 survey, nearly half of responding parents with adult children helped those children financially during the pandemic, with 79% of that group doing so at the expense of their own personal finances.1
What’s more, many grown children remain living at home with their parents, further straining finances. Toward the end of 2021, it was reported that 58% of adults ages 18 to 24 lived in their parental home, compared to 17% of adults ages 25 to 34.2
Expecting to be Rescued
For many parents, helping their children is an enjoyable and rewarding experience. But there are some who go beyond occasionally offering a helping hand and instead wind up becoming their children’s crisis managers.
Out-of-the-ordinary and temporary pandemic assistance aside, when grown children make poor life decisions and their moms or dads repeatedly swoop in to save the day, it can perpetuate the problem.
Whatever the reason for continually assisting grown children, it’s possible that, in addition to any financial harm experienced by the parents, too much financial help may prevent their children from finding their own path to financial success.
How Advisors Can Help Parents of Entitled Children
Some parents are painfully aware of the impact their children have on their wellbeing and willingly admit they need to do something about the resulting financial and emotional toll. Still, this is a sensitive subject, and certain aspects of it likely fall outside your area of expertise.
As an advisor, show empathy and care. It’s not unreasonable in these circumstances to encourage your clients to seek professional counsel to work through the emotional pulls and relational dysfunctions that might exist.
Some clients may consider their children “off limits” when it comes to addressing finances. In other cases, each spouse may have varying degrees of awareness, interest or concern over the financial drain caused by their children.
In any regard, tread lightly and focus on the known facts surrounding your client’s financial circumstances. Show your clients comparative forecast models that outline potential earnings over the next 10 to 20 years or longer. Be transparent about the possible scenarios.
While philosophies on supporting adult children can be subjective, hard data about a couple’s financial state typically isn’t up for debate. Even with current hard numbers, an individual’s longevity risk also makes it difficult to predict long-term financial security.
As an advisor, you may need to help clients explore investment options that offer guaranteed lifetime withdrawal benefits to help mitigate the risk of running out of money in retirement.
The topic of helping grown children with money is an emotional one, and it can add stress to an already tense situation. Navigating behaviors and emotions can be difficult when it comes to finances, and we want to help guide you along the way with An Advisor’s Guide to Behavioral Finance. Simply click the link to receive your copy today.
Written by: Marshall Heitzman, CFP®, ChFC, FLMI, CPCU, BFA™
Marshall is TruStage's Advanced Planning Expert and has more than 25 years of experience in the insurance and financial services industry. He consults Financial Professionals on advanced retirement planning concepts for retirement and wealth management clients.