It can be difficult to save for your own lifestyle and retirement if you continue to bail out adult kids with their own expenses.
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Supporting our capable adult children with frequent cash to balance their budget could have dire consequences for everyoneQ: I’m afraid of running out of money. My husband and I are both closing in on 80 years old and our adult children act like we are made of money. While it’s true we’ve done OK for ourselves and have been generous with our kids in the past, we can’t afford to keep this up. Our medical expenses are getting more each year. We need to look at downsizing from our condo and moving into a seniors’ home sooner than later because we just aren’t as mobile as we used to be. I think we need to look after ourselves now while my husband thinks if we help the kids out, they’ll be in a better position to help us out later on. He disagrees with putting limits on our ongoing generosity; what do you think? ~HelenA: Giving feels good and it is only natural that as parents, we want to help out our children and/or grandchildren. We’ve looked after them all of their lives, and if we have means, it’s easy to be generous. However, there is a difference between sharing what could be better described as one-time early inheritance gifts versus paying bills and regular expenses for our kids on an ongoing basis.Supporting our capable adult children with frequent cash to balance their budget could have dire consequences for everyone. For your kids, they could end up being poor money managers. For parents, you could leave yourselves short and unable to pay for essentials when you need them most. And disagreements about money could ruin relationships.Putting limits on your generosity is smart. Here are three reasons why:1. You won’t be forced to gamble on your children’s decisionsLimits on your generosity mean you won’t have to delay your retirement or live a more frugal lifestyle during retirement. Helping capable adult children financially could force you to make such sacrifices if you end up leaving yourself short, because there is no guarantee that your kids will be able to help you out later. You are in essence gambling on their decisions — around spending, saving, employment, their spouse, your grandchildren — all of it and it’s a huge risk you’re taking if that is your plan.Helping your kids doesn’t guarantee that they’ll manage the rest of their finances in a way that will allow them to help you with your expenses when the time comes. For instance, if you’re able to gift your children a lump-sum mortgage amount to pay their mortgage off sooner, they may use the income that had been going toward their mortgage payments for vacations, tuition money for your grandchildren or even home renovations. In such a situation, your retirement money would be enhancing their lifestyle, not allowing them to save to support your expenses at some point in the future.If your child is accustomed to you paying specific bills for them, they could be spending their money on other non-essential expenses and also be in no position to help you out later on. If your child depends on your cash to balance their budget, it’s time to have a serious conversation about untangling your combined finances and limiting your ties to their budget.Seniors and Debt – A Growing Problem That We Can Help Fix2. It preserves relationshipsWhether there is enough, more than enough or really not enough money, financial issues can strain relationships between spouses, parents and adult children, and even impact relationships with extended family members. The last thing you want to do is ruin family relations over money.If you and your spouse disagree about how much to help your kids, to preserve the relationship you have with your spouse talk about what your joint financial future should look like. Determine how much money you need to take from savings each month to make ends meet and pay for the lifestyle you envision for your retirement years. Meet with your investment adviser if necessary to revisit your goals. Create a household budget you both can live with that accounts for any changes in spending you anticipate for age-related costs. Then let your numbers be your guide when it comes to spending on your children.How to Start Talking to Your Spouse About MoneyHelping children unequally can create resentment not only towards what one sibling is getting from you, but also that one of your children could be harming your future financial stability. Your extended family members could even be worried about how you’ll manage if you’re helping your child(ren) too much.How to Save for Retirement on a Small IncomeElder abuseAn issue that rears its ugly head when it comes to seniors and money is that no matter how much or how little you have, you could be vulnerable to abuse by your child(ren), grandchildren, caregivers or other friends and family. From making you feel guilty about helping last time but not this time to using a power of attorney to take funds from your bank account or overtly pressuring you to part with your hard-earned cash for any number of ultimately selfish reasons, elder abuse comes in many forms. If you feel taken advantage of in any way, contact an independent professional, e.g. lawyer, banker, police offer or seniors’ advocate, who can protect you as you resolve the issue.Financial Hardship – Unlocking Locked-In Retirement Funds3. It causes children to develop resiliencyIs the way you’re helping your children creating dependency, or will they be able to manage successfully on their own when you and your bank account aren’t around one day? Capable adult kids need to learn how to manage their affairs on their own. Becoming self-reliant, especially with finances, encourages them to develop sound money skills. For instance, running into problems dealing with credit card debt could point someone toward avoiding such a situation in the future by spending more within their means. A job layoff or reduced-income situation will hopefully inspire saving up an emergency fund. The school of hard knocks can teach some tough lessons, but not ones we easily forget.How to Approach Asking Your Adult Child to Pay RentThe bottom line on the financial impact of helping adult childrenRetirement and aging are a lot more costly than most people realize. If you’re using your income to support your capable adult children, it could seriously impact your standard of living come retirement because you’re missing out on key savings and compound interest — money that you will need to support yourself one day when you’re no longer working. If you’re depleting your nest egg to help your kids or give early inheritances, be cautiously generous and get professional help to create a thoughtful and robust estate plan. While your help is well intentioned, it could wreak unanticipated havoc later in life.Related reading:Inheritance Dilemma – Save and Invest or Pay Off DebtOne of the Biggest Retirement MistakesMoney Mistakes That Will Keep You BrokeScott Hannah is president of the Credit Counselling Society, a non-profit organization. For more information about managing your money or debt, contact Scott by email, check www.nomoredebts.org or call 1-888-527-8999.