What should parents do if their adult children come to them for financial help? Many parents may agree to assist them without a second thought. They want to make sure their loved ones are taken care of and able to lead a comfortable life.
Financially enabling adult children, however, is a careful needle to thread. Parents who do not think too deeply about the types of money requests being made from them may struggle to take care of their own needs such as planning for retirement. They may even get into debt, even if their intentions to help their children are good ones. Before responding to an adult child’s financial request, here’s what every parent must take into consideration.
How Much Is Needed and What Is the Purpose?
How much is your adult child asking for and what is the purpose of this request? These are the two questions David Handler, a partner in trusts and estates at Kirkland & Ellis, recommends carefully reviewing.
The amount an adult child requests must be an amount the parent can afford without jeopardizing their own financial situation. Parents must clearly understand why the child needs the money. The purpose for the money may range from covering emergency health expenses to assisting with a down payment on a home.
Handler also recommends examining the frequency of the financial ask. Is the child gainfully employed and hard-working or are they repeatedly asking for money? The answers to these questions will dictate whether the parent can, or should, help.
Speak Honestly About Your Financial Situation
Rather than immediately saying yes to your child’s financial request, Danielle Miura, CFP and founder of Spark Financials, recommends parents have an honest conversation about their financial situation with their adult children.
This allows everyone to see a clear picture of the parents’ finances. Some adult children might not realize just how many outstanding expenses are part of their parents’ lifestyle, like an existing mortgage they are working to pay off or a credit card balance. This conversation may help adult children better understand what kind of monetary support is and isn’t possible for them. It keeps them viewing their parents as “bad guys” who are unwilling to help out.
If necessary, it may be beneficial to have a financial planner or advisor present as a third-party, skilled facilitator. They can help answer any questions during the meeting.
Offer Nonfinancial Assistance
If a parent cannot afford to financially help an adult child, they may provide nonfinancial requests. Miura said these may include helping the child create a budget or connecting them with a financial professional.
If a parent does want to help their adult child, it’s a good idea to meet with a financial planner or advisor before writing any checks or making any deposits. This allows parents to see what they can and cannot afford (if they aren’t already certain) and assess whether they may offer support.
Consider Healthy Money Lending
Rather than simply giving away “help,” there is an opportunity for parents to consider lending money at a low rate.
“Healthy money lending is when there is clear communication about the expectations, there are respectful boundaries and the parents are not compromising their financial situation for the sake of their child,” Miura said.
Part of healthy money lending means being consistent about how much you are willing to give your child and how frequently. Parents should also create a timeline for when they stop lending or giving adult children money requests. Miura said parents should have an idea of when they want to gradually limit the amount of money or the frequency they give to children.
Lead by Example
Having children is a blessing, but providing adult children with unlimited financial support can cause parents more problems than relief.
Parents should clearly understand how much money is needed, the purpose of the request and the frequency of the ask. If they decide to practice healthy money lending, parents need to create a timeline for when their children will pay them back.
As parents share honest details about their financial situation during the family meeting together, it’s important for adult children to be just as transparent in return. They should clearly articulate where they will use this money and share details about their current financial situation, including any outstanding debt, and if they have a savings account.
Having this kind of discussion will help parents, and adult children, understand how money should be handled before it is spent. Avneet Kaur, CFO and co-founder of Core Family Office, said it allows parents to lead by example, guiding their children toward treating their savings accounts with more care.
“Just remember, it is okay for parents to be concerned about their financial future while making this decision,” Kaur said.
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