According to a 2014 study by American Consumer Credit Counseling, nearly one-third of American households provide financial support to adult children.1 It’s a common phenomenon for parents of young adults: The child leaves the house and graduates from school, only to return for financial support because of student loan debt, a weak job market and other factors.
The phenomenon is so common that these grown children have a nickname: “boomerang kids.” The name is fitting because of their propensity to return home rather than set out on their own.
Funny nicknames aside, the “boomerang kid” phenomenon is no joking matter. If you’re supporting a grown child, that support could limit the amount of money you put into your retirement savings. And with retirement fast approaching, you may need all the savings you can generate.
Fortunately, there are steps you can take to protect yourself and to nudge your grown child into independence. Below are four effective tips. Try implementing these with your child.
Share your challenges with them.
Your child may be so quick to ask for help because they don’t understand the financial challenges you face. They may assume you are wealthy or that you are set for retirement. They may know that you have hundreds of thousands of dollars saved for retirement, but may not realize that you need significantly more.
Sit down and review your retirement planning challenges with them. Better yet, take them with you to meet with your financial professional. Then your child can see firsthand how much work you have left to do and how their need for help limits your ability to meet your goals.
Help them develop a plan.
If your child really does need help, you can’t expect them to become financially independent overnight. That could put them in an even more challenging situation. Instead, help your child develop a budget and plan to become independent within a reasonable time frame.
Set a date by which they will be fully independent. And then gradually shift bills and expenses to them over an extended period of time. That will help your child ease into independence rather than facing it all at once.
Put limits on your support.
Your support shouldn’t be open-ended or unlimited. That’s a recipe for financial disaster. Instead, if you do agree to help, set firm limits on the assistance. Set a max amount of support that you will provide on a monthly basis, or give them a date in the future at which the support will stop.
Also, promise yourself that you won’t dip into retirement accounts or cut back on your retirement saving to support your child. If your support negatively impacts your ability to save, that’s likely a sign that you’re providing too much help.
Give them a peek into the future.
Finally, let your child know what might happen if they don’t become independent. If their need for assistance limits your ability to save, you may not be able to retire comfortably. In fact, you may not have enough money to meet your obligations during your later years.
If that happens, it may be you who is asking your child for assistance. Neither of you likely wants to be in that position. That prospect may be enough to persuade them to pursue financial independence.
For more information, contact us at Carstens Financial Group in Arnolds Park, Iowa. We can help you and your child develop a plan that benefits both of you. Let’s connect today and start the conversation.
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