Support – Don’t Spoil || Independent Children

If you have a child in college or recently graduated, helping them “launch” is probably on your mind. As a financial advisor, this conversation is one of our favorites. We have our own kids, and we know how strongly we want to help them succeed. It doesn’t matter if they’re 15 or 50. For now, here are a few of the most important perspectives to balance when it comes to helping your young adult kids launch into successful, fulfilling lives.

Secure Your Own Mask First

A recent survey found that “nearly 7 in 10 parents with children 18 or older said they have made a financial sacrifice to help their grown-up kids.” Those sacrifices included:

• Reducing emergency savings (51%)
• Limiting the ability to pay off debt (49%)
• Harder to save for retirement (43%)
• Harder to reach other financial milestones (55%)

We have often seen families overextend themselves and compromise their financial footing. Here are a few helpful questions for your financial advisor when considering support for your adult children.

• Do we have any spare room in our current to provide this support?
• Would anything about our lifestyle need to change to provide this support?
• How long do we plan on providing this support?

Encourage Independence While Supporting Them

There’s a second question that comes up in these conversations. “How do I provide financial support without undermining their independence?” The aim is to support their launch, not subsidize a dependent lifestyle. It’s an important question. Affluent households (45-70 years old, $500,000-$3M in assets) saw a unique discrepancy, according to Edelman:

93% of affluent parents claimed to encourage their kids to be financially independent, but 50% of their kids rely on their parent’s financial support. Coincidentally, this same group also saw a steep rise in spending on luxury goods like watches and vacations among their kids.

Our kids’ relationship with money is more important in the long run than their net worth. How we support our kids makes all the difference. If you want to keep this healthy balance, here are two ideas to consider:

Have clear parameters for your support.  Identifying a specific reason for your support helps you better clarify the amount and duration you want to provide.

Tie your support to your values. While your love for your kids might be unconditional, your financial support doesn’t have to be. Are there any circumstances where you might reduce or remove your support? Communicating those ahead of time can help your kids take their role as stewards seriously.

Consider supporting with a family loan instead of a gift. Sometimes, providing your support in the form of a loan helps your kids grasp the value of money. It provides a litmus test – is this decision a good investment? Would I spend my own money on this?

Whatever the decision – education, buying a house, starting a business – it pays to be intentional with your decision. If you’re looking for the best way to support your adult children financially, this is a great conversation to have with your financial advisor. We are here to help you think through how the decision impacts your financial plan and your children’s path to independence.