It’s not uncommon for parents to help their children pay for college or a wedding. Giving a grown son or daughter a financial boost as they begin “adulting” may even bring a sense of satisfaction.
But what happens when grown children continue to rely on their parents to meet basic expenses once they’ve left home? While assisting adult children financially is certainly a parent’s prerogative, the added economic strain may negatively impact their own financial wellbeing and threaten their retirement savings.
Ideally, you can have a conversation about the potential impact of supporting children into adulthood before that time comes. If you have a client who’s already giving their adult children more than a helping hand, you may need to tread lightly when bringing up the issue. However, encouraging clients to consider stepping back in the following areas may help them ease their own financial strains.
Even though children are allowed to remain on their parent’s health plan until age 26, it doesn’t mean that it’s in their best interest to do so (or your client’s best interests either). Depending on the premiums and deductibles, a child’s employer-sponsored health insurance plan may be far less expensive and provide even better coverage. In such cases, removing an adult child from a parent’s insurance policy may make sense.
It’s common knowledge that younger drivers typically pay more for car insurance, and keeping them on a parent’s policy may add significant costs. Knowing that they need to pay for their own coverage and deductibles may just be the motivating factor a child needs to be more diligent and avoid careless fender benders. Removing younger drivers from a parent’s insurance policy will typically reduce liability and the resulting premiums. If an adult child owns their own vehicle, it stands to reason they should pay for any related expenses.
Some mobile carriers offer family plans that provide substantial discounts for multiple phone lines. Allowing a grown child to participate in that plan may be a way to assist them without breaking the bank. Parents may want to ask children to contribute a small amount each month to cover their share. Upgrading to the latest smartphone just because a new model or tech gadget is released, however, should be on their own dime.
Housing & Food
Food and shelter are basic human needs, but how far should a parent go to provide these necessities for adult children? The answer is complex and will vary in each situation. Be sensitive when starting a conversation, and consider simply asking questions to allow your clients to come to their own conclusions about whether they may want to help out.
For example, you may ask, “Does your child still participate in or pay for discretionary expenses such as entertainment, gym memberships, subscriptions, vacations or hobbies?” How a client answers may help them realize on their own whether their child truly needs help covering basic needs or simply isn’t willing to give up their comfortable lifestyle. Helping a child who is genuinely struggling despite earnest efforts to get ahead is one thing; enabling them is another.
Just because a child may not be able to afford their current lifestyle without support doesn’t mean a parent should continue providing it. Like generations before, adult children may need to get a part-time job and forego certain “nice-to-haves” to make ends meet. When communicated properly, saying “no” may be the equivalent of saying, “I believe in you,” and what child doesn’t want to hear that?
That said, some kids do need a helping hand, and you can’t expect your clients to turn a blind eye. If any of the aforementioned expenses help a child secure a job or help position them for future success, for example, it may make sense to provide financial assistance for a time to help them make it on their own.
Regardless of a client’s philosophy about financially supporting their adult children, you may want to encourage them to develop a written financial arrangement regarding the amount, potential repayment terms, duration of the agreement and so on. Even better is when the child is a part of that planning process. Knowing that financial assistance is temporary and not a long-term fix may help set clear expectations for adult children. It may also help establish boundaries and empower them with valuable money management skills that will serve them well into the future.
Understanding how younger generations view finances may help you provide further guidance for clients and their adult children. Use our guide below, The Power of Generation Z, to gain insights into what drives their thinking to help you connect.