Adulthood used to mean financial independence from parents, but many of today’s parents give financial help to their adult children. According to the Bank of America/USA TODAY Better Money Habits Millennial Report, 40 percent of adult millennials currently get financial help from parents.
However, accepting such monetary help can cause problems for your finances, your parents’ finances and your relationship with each other.
“There is a real balancing act here between meeting the needs of the adult child in the present [and] being able to meet the financial needs of the parent in the future,” said Greg Smith, a certified financial planner and managing director of The Wise Investor Group at Baird.
Before asking for or accepting financial help, adult children have a responsibility to consider not only what is good for their finances, but also for their parents’ as well. If you’re weighing the pros and cons, these warning signs could indicate you’d be better off turning down financial help from your parents.
1. You Have Poor Financial Habits
It’s hard to watch kids struggle, and the first impulse for parents is to step in and help. However, if you constantly need help from parents, your own money management is the real problem that needs to be addressed. Accepting offered money is the easy way out, but if you don’t fix irresponsible habits or unsustainable financial situations, you will become a drain on parents.
“More often than not, the recipient has made lifestyle choices to get them into a financial bind, and those choices are reparable without endangering the financial stability of another household — that of your parents,” said Kyle Winkfield, managing partner of Rockville, Md., financial advising firm O.W.R.S. Money crises caused by “lifestyle decisions — otherwise labeled as ‘wants’ and not ‘needs’ — are always cases in which you should decline help from your parents.”
If you can afford to, turning down help and fixing it on your own can also be empowering and educational. “Children who are able to dig themselves out of a financial hole not only learn a great deal from the experience, [but] may feel more self-reliant, independent and gratified knowing they did it on their own,” Smith said.
Read: 5 Ways to Make a Better Plan for Your Money in 2016
2. Your Parents Have Bad Money Habits
If your parents have their own bad money habits, whether it’s living paycheck-to-paycheck or overcharging to credit cards, this is a sign you shouldn’t accept help from them. Since you’ve known your parents for a while, you probably know whether they are generally responsible with their money or not. If they fall into the latter category, it’s likely best to turn down help.
This is especially true if your parents are struggling with debt. David Henderson, a CFP in Denver, gave an example of a couple he works with. They are in their 70s, struggling with debt they’ve accrued, yet still insist on putting a few hundred dollars a month toward an adult child’s bills.
“This is crazy,” he said. “My clients are barely getting by, and in my opinion the kids should be ashamed of themselves for allowing this to go on.”
If this sounds familiar, it’s time to say “no” to help from parents.
3. You’re Ready for Financial Independence
“One of the first signs that you’re a mature adult is your ability to decline financial support from your parents, even if you feel you need it,” Winkfield said. “Your parents’ job from ages 0 to 18 was to raise you to adulthood in a safe and secure environment. What your parents are not responsible for is providing financial support once you’re an adult — that’s your job.”
Handling your financial situation independently of parents is more than just an important step in adulthood — it shows that you can truly afford your decisions and purchases.
For instance, if your employment outlook after graduation isn’t good enough that you could afford to make your student loan payments, that could be a sign you need to consider a more marketable major instead of asking for help from your parents. If you need help from your parents to buy a home or make a 20 percent down payment, this could be a sign you’re not ready for a mortgage, either.
Being able to take these steps on your own is the best proof that you can afford to do so without putting yourself and others at financial risk. “The most responsible thing that an adult can do, as a parent or as a child, is to ensure that they will not be an undue financial burden to another person in general,” Winkfield added.
4. Your Parents Financially Support Others
If other people rely on your parents for money, that’s another indicator you need to work toward financial independence. “Something to be sensitive to is that parents might be helping their own parents as well,” said Jillian Berman, a reporter for MarketWatch. “If your parents are giving their parents financial help, you might not want to further burden them.”
If your parents are generous people (and they probably are if they are offering money to you), think of others they are also financially supporting, like aging parents or your sibling who’s just starting college. The more people your parents are trying to help, the higher the chances are that they could be sacrificing their own financial security to do so.
For those with “a struggling parent thinking about their aging parents … the Bank of Mom and Dad should really be viewed as the Bank of Last Resort,” Smith said. You should avoid accepting help if this is the case, and instead work to cover your own costs.
5. You Have Trouble Discussing Finances With Your Parents
“Talking about money isn’t easy, sometimes especially with family,” said Anthony Criscuolo, a CFP and portfolio manager with Palisades Hudson Financial Group in Ft. Lauderdale, Fla. “But clear and honest communication is the only way to ensure that you can accept your parents’ financial help without worrying that it will just transfer the problems from your household to theirs.”
If you and your parents have trouble talking about money, avoid the topic or have arguments over it, that’s a sign that getting money from parents could strain your relationship and their finances. You won’t be able to decide if accepting help is a good solution for everyone unless you have a clear understanding of your parents’ finances and expectations.
“Don’t be afraid to be the one to ask tough but caring questions about how helping you might fit into their monthly budget or long-term plans,” Criscuolo added. “And don’t be stingy with the details of your own situation, which may make your parents assume the worst needlessly.”
6. You’re Unclear on the Terms of Financial Help
Along with understanding your parents’ finances, you also need to be really clear on any expectations, conditions or considerations attached to the help being offered.
“It seems to work best if the parameters for providing money are discussed and set prior to giving any money,” said Rochelle Odesser, CFP and vice president of Madison Planning Group in White Plains, N.Y. “This could mean setting a time frame for the support, or setting some specific goals or situation in which the support would stop.”
If parents are giving you cash, make sure everyone agrees on whether it’s a gift or a loan. If it’s a loan from your parents, make sure to discuss the exact terms of repayment and put it in writing, suggested Criscuolo. Or perhaps your parents are covering a bill for you, like a cellphone. Discuss how long they plan to do so and when you should expect to take over this bill, as well as other details like who will pay overage charges or extra fees you might incur.
7. You’re Worried It Will Strain Your Relationships
Damage to relationships is one of the biggest dangers of mixing money and family. If expectations aren’t met, or someone feels an arrangement is unfair, it can cause resentment and bad feelings. Accepting financial help “may seem okay now, but money can erode relationships over time, between the parties doing the exchange, third parties (siblings, etc.), your relationship with your partner and your partner’s relationship with your parents,” Winkfield said.
If a child-parent relationship has some issues or dysfunctions (and whose doesn’t), involving money can amplify those issues and strain a relationship. “Some children may turn down financial help from parents when it comes with strings attached,” Smith said. “Some parents use money as a crowbar.”
Consider the dynamic between you and your parents, and how money might impact it. Consider whether you’re confident you’ll be able to stick to the conditions or expectations they’ll have, or if they’re too unreasonable. Also consider whether your parents will maintain a healthy respect for your boundaries and independence.
“It may not feel at the time like the best or easiest decision, but when money comes with untenable conditions, I would pass,” Smith added.
Read: 5 Tips to Build Up an Emergency Fund This Year
8. Your Parents Are Behind on Saving for Retirement
Your parents are likely old enough to be approaching retirement age or might already be in retirement. Most of their financial resources should be focused on building and maintaining a secure retirement fund, not bailing out their adult kids. While you’ll have years to correct financial mistakes and build a secure future, time for your parents could be running out.
“Young people are more aware of their parents’ financial situation,” Berman said. “They came of age in financial crisis and watched the fallout. They might have watched parents lose their jobs or a bunch of their retirement savings, so they do have more of a sense of what’s going on there.”
You probably have an idea of how prepared your parents are to retire, so make sure to bring this up as you discuss their offer of financial help. Keep in mind that you might be the one paying later for any help your parents give you now.
“[T]heir sacrifice today might mean greater sacrifices by the recipient later on down the line, as they will have to make up the deficit, perhaps in the form of retirement income supplements, moving parents into their home, financing elder care, etc.,” Winkfield said.
9. You Have Other Financial Options
“You should turn down financial help from parents if there are other means available — student loans, working overtime, taking on an extra job, cutting back or tightening belts,” Smith said. “There may be other options that could be explored before piercing that boundary.”
For instance, when trying to finance a college education, “sometimes both students and parents will resort to borrowing options that involve the parents before they have to,” Berman said. “When you’re trying to get a student loan, you want to first have the students max out their own federal loans before pulling a parent into borrowing, either through a private or federal loan. With federal loans, there aren’t as many protections for parents as for students, and the parent is on the hook and they could make themselves vulnerable.”
If your parents can’t give you help out-of-pocket, that could be a red flag that they can’t really afford to give you money. Parents who go into debt or borrow from retirement accounts to help you will be doing so at the expense of their own financial security.