By Vincent Barbera, CFP®, MSFS
Did you know that 74% of parents still help their adult children financially? (1) You may read this statistic and think, “Yeah, I’m one of them!” Wanting to help your children is natural, but it can also be dangerous. If lending your adult children money is disrupting your retirement plans, here are 4 ways to cut the cord.
1. Have A Heart-To-Heart
Unless you openly talk to your children about finances, they may not know they’re setting you back. Sit down and have a heart-to-heart with your kids to give them a peek into your financial situation. Explain how giving them money has pushed back your retirement date or forced you to dip into your 401(k). This will likely be a difficult conversation, but they’re adults…they can handle it! Be as specific as possible to help them better understand why you need to cut the cord.
If your children are upset, phrase it in a way that benefits them. Let them know that your own financial security means they won’t have to support you during retirement. You’re doing this for them after all.
2. Offer Support In Other Ways
Just because you don’t give your child financial support doesn’t mean you don’t support them at all. Ask how you can be there for them moving forward. Could you help them look for a job? Offer to help find housing within their new budget? Maybe walk them through how to negotiate a raise at their current job? There are many ways to help your child without handing over the checkbook. Make sure they know you’re still there for them.
3. Help Them Create A Budget
The first rule of financial security is spending less than you earn and saving the difference. If your adult child can master this, they’ll soon be more independent. Teach them the 50/30/20 budgeting rule that states 50% of expenses should go to needs, 30% should go to wants, and 20% should go to savings. Introduce them to a budgeting app that can help them manage their money straight from their phone.
4. Give Them Conditions
Don’t want to cut your kids off cold turkey? Give them conditions on how long and under what circumstances you’ll continue to support them. They’ll learn nothing if you hand over money without a thought. But if you introduce conditions, they’ll learn to be responsible.
These conditions might include treating the money you give them as a loan. If they need money for rent, set clear rules on when they’ll pay you back (and even add interest if you want).
If your child is jobless and wants to move back home, set a time limit to how long they’ll stay and how they’ll contribute to the household. The bottom line is to make them earn the money you give them.
Get Your Retirement Back On Track
Once you’ve had the heart-to-heart and have cut the money cord with your children, take a deep breath. You may doubt your choices as you see your child struggle to make ends meet, but take comfort in knowing this is only temporary. You’ll be there to emotionally support them every step of the way, just not financially.
The best gift you can give your child is teaching them how to manage money. When your children can set a steady course toward their own financial success, it helps them live within their means and helps you keep your retirement savings.
At Newbridge Wealth Management, we specialize in cash flow planning, debt management, budgeting and saving, and more. If you need help getting back on track for retirement, we’d love to help you create a financial plan that gets you there. Want to learn more? Click here to access our online calendar and easily schedule a free 15-minute introductory phone call, or you can email us at firstname.lastname@example.org or call 610.727.3960 to schedule a meeting today!
Vincent R. Barbera, CFP®, MSFS is a managing partner and co-founder of Newbridge Wealth Management, a private financial counseling firm located in Berwyn, Pennsylvania. Believing in a patient, disciplined approach to investment management that delivers value and peace of mind, he utilizes a process-driven approach to financial planning that provides comfort and clarity to his clients’ long-term goals. Along with a bachelor’s degree in psychology and business, he has a master’s degree in business and financial planning and Certified Financial Planner™ designation. Learn more by connecting with Vincent on LinkedIn, or send him questions at email@example.com.