When meeting with clients to discuss their risk tolerances and explore potential “what-if” scenarios, you’ll likely uncover many concerns. Topping the list of possible threats to someone’s nest egg will undoubtedly be market downturns, healthcare costs, or even outliving their retirement savings.
What rarely gets discussed, however, is how a couple’s children could jeopardize their financial futures. Admittedly, discussing the effects of caring “too deeply” for adult children by financially supporting them could be an uncomfortable conversation, but it warrants exploration.
When parents don’t set financial boundaries with their children, the resulting relational volatility may be a greater threat to retirement than market volatility. Not sure how to bring up the topic or what signs to look for? Use these insights and tips.
Characteristics of Entitled Children
Some parents, having grown up in a strict or overbearing environment, allowed the pendulum to swing 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.
Some children raised in these kinds of environments grew up with an attitude of gratitude and freely give back to others. On the other hand, some grew up lacking the coping skills to handle situations where they were 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 into their demands and even estrangement.
After spending years helping children out financially, some parents find themselves in their own financial predicament in their retirement years. According to one study, at least 50% of parents have cut into their retirement savings to help their adult children financially.1 What are the signs to look for that may indicate your client is dealing with an entitled adult child who could be affecting their parents’ financial wellbeing?
Relies on Parents 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 is so prevalent that some studies suggest a whopping 79% of parents provide some form of financial support to their adult children, spending twice as much on them as for their own retirement.2
And more than one in five adults — 22% of Millennials — are staying or returning home, nearly double the amount from 20 years ago.3
Expects 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 to becoming their children’s crisis managers. When grown children make poor life decisions and their moms or dads repeatedly swoop in to save the day, it can perpetuate the problem.
Psychologists suggest that coming to the rescue too quickly may stem from parental guilt, but those same professionals recommend setting boundaries and establishing new patterns that can motivate children to come up with solutions on their own.4
How Advisors Can Help Parents of Entitled Children
There are some parents who 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. 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 exist.
Other clients may consider their children “off limits” when it comes to addressing finances. In other cases, each spouse may have varying degrees of awareness and concern over the financial drain caused by their children.
In either regard, tread lightly and focus on the known facts surrounding your client’s financial status. Show your clients comparative forecast models that outline potential earnings over the next 10–20 years or longer. In the same way that you might address spendthrift clients, be transparent about the impact that overspending can have — whether your client chooses to spend those dollars on children or a new vacation home.
While philosophies on supporting adult children can be subjective, hard data about a couple’s financial status typically isn’t up for debate. Depending on an investor’s longevity risk, those figures can be difficult to forecast. 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.
Discussing finances can be difficult to begin with for some clients. Add in the financial uncertainties surrounding their children and things can become even more tense. Equip yourself to start the conversation by using our guidebook, 7 Steps to Helping Clients Achieve Financial Security and Retirement Satisfaction. Simply click the link below.
SOURCES:1Bankrate, Half of Parents Financially Helping their Adult Children Say it’s Putting Retirement Savings at Risk, April 24, 2019
2CNBC, Parents Spend Twice as Much on Adult Children than They Save for Retirement, October 3, 2018
3CBS News, More Millennials Are Living at Home than at Any Other Time this Century, May 10, 2019
4Psychology Today, 3 Ways Guilt Impacts Parents of Struggling Adult Children, October 14, 2018